Can't Max Out Your IRA? Do This Instead

It's important to save for retirement so you have funds available to pay your living expenses later in life. Relying on Social Security alone could mean taking a major pay cut, since those benefits only replace about 40% of income for average wage-earners. 

If you have a 401(k) plan through work, contributing to it is a great way to build up a retirement nest egg. But maxing out a 401(k) is a tough thing, since these plans top out at $22,500 for workers under age 50 and $30,000 for those 50 and over. 

Maxing out an IRA, on the other hand, may be more doable. IRAs max out at $6,500 this year for workers under 50 and $7,500 for those 50 and older, which is a more reasonable sum of money to part with. 

But what if you can't max out your IRA? Maybe you can't swing the aforementioned numbers due to having car payments, mortgage payments, and a host of bills to grapple with.

Not being able to max out your IRA doesn't mean you're doomed to a cash-strapped retirement, so don't get too down on yourself. And if you can't max your IRA right now, there's something else you can do instead.

Some retirement savings is better than none

Some people don't manage to save anything for retirement. So if you're contributing some amount of money to an IRA, you're in far better shape than those folks.

If money is tight, your best bet is to save as much as you can for the time being, and then try to save any raise or bonus you get in the coming year. And then, save your raise the year after that. Over time, increasing your IRA contributions slowly could make a big difference.

Perhaps you're only able to put $50 a month into your IRA this year. Maybe by next year, you'll be able to put $80 a month in. And so forth. And even if you can't increase your contributions year after year, you may be able to get pretty far with what you're saving already.

Let's say you just started putting $50 a month into an IRA and you're 24 years old with the goal of retiring at age 65. The stock market's average return over the past 50 years has been 10%. If you invest $50 a month over 21 years at that return, you'll be looking at almost $300,000 in savings. That's more than the typical American of retirement age has right now, according to data from Northwestern Mutual.

It's not all or nothing 

Funding an IRA to the best of your ability is better than not making contributions at all. So don't be bummed if you can't max out right now. You might be able to someday, and until then, try to increase your contributions from year to year. And even if you can't do that, if you keep funding your account at your current pace, you might end up with a pretty large sum of money at the end of your career.