How to grow your retirement savings

How to grow your retirement savings

Saving for retirement is, without a doubt, one of the wisest financial strategies you could follow, whether you are in your mid-20s or early 50s. The truth is that the earlier you start putting money aside and investing for your later years, the better off you will be. We have to thank compound interest for that. We will talk more about it later on. However, it is never too late.

Start Saving Today

According to various surveys, one of the top regrets of retirees is that they started saving either too little or too late. So, if you have yet to begin or are just beginning to save money for retirement, try to maximize your contributions so that you can benefit from compound interest. In short, compound interest is the ability of your assets to generate earnings for you; earnings that will generate their own earnings, with each passing year.

Suppose you take out a loan. The interest rate is calculated for the first year or month (“first period”), depending on the case, and is then added to the original total. The interest for the next period is calculated based on the gross figure from the first one. And so on. So, it is like you are reinvesting your assets every year and they give more earnings for you in return.

Financial experts recommend we keep aside, at least, 15% of our salary for retirement. One of the easiest ways to get there is by raising the amount you save by a couple of percentage points at a time. You can do that either by yourself (set a reminder on your smartphone or calendar) or through the auto-increase feature of your workplace retirement plan (if yours has it).

Contribute to Your 401(k) or Meet Your Employer’s Match

Traditional 401(k)

A 401(k) plan is a type of retirement account that comes with significant tax advantages and is a great and easy way to compound money over time. Stashing retirement savings in your 401(k) plan should be a priority because the money is automatically taken from your weekly or monthly paychecks before you get a chance to spend it (and before the taxes are assessed – meaning, you contribute to pre-tax money). So, for a $100 contribution per pay period, your take-home pay will reduce to $15, if you are in the 15% tax bracket. This allows you to invest more of your money but, most importantly, it also allows you to compound money.

Company Match

Most companies offer traditional 401(k) plans. In some cases, they will also offer a company match or 401(k) match, which is basically extra money the employer contributes to your account. You can consider it, well, free money!

Suppose you earn $50,000 annually and your company offers to match 50% of your contributions up 5% of your salary. If you make a contribution of $2,500 to your retirement plan yearly, the company will kick in another $1,250. If your employer offers a company match, on top of a retirement plan, it is wise to contribute to the amount the company you work for kicks in.

Consider Other Options If Your Company Does not Offer 401(k)

If your company does not offer a 401(k), you have 3 options (1) Fund a traditional IRA (Individual Retirement Account), (2) Fund a Roth IRA or (3) Fund a myRA.

Do NOT Invest 100% in the Stock Market

Some people go into retirement with money invested in the stock market. This is the worst idea ever. Imagine the market plummets a day or week before you plan to retire. Or the market experiences a big crash after you retire. Instead, have 2 years’ worth of liquid savings. Having a cash cushion will allow you to keep your investments (and not sell them for breadcrumbs at the worst possible time) while also meet your expenses.

Pay Down Debts

As a means to save for retirement and not be overwhelmed by all the effort involved, it is prudent to pay down your student debt or any other loan. According to findings of a study conducted by Aon Hewitt Corporation, 51% of workers (younger people, as well as 26% of Generation X, and 13% of baby boomers) with student debt hanging over their heads contribute a mere 5% of their salary to retirement plans/savings. Any kind of debt, be it credit card, student or any other, should best be paid down when you are about to enter your retirement years.

Other Key Considerations/ Added Tips:

Automate your retirement contributions. This will help you grow your nest egg without feeling it too much on your monthly income. Have a budget and stick to it. Trying to reduce unnecessary spending to have more to save or invest is the idea here. Negotiate a lower rate wherever you can (i.e. on your car insurance) to increase the amount of money you can save for retirement. Set benchmarks along the way and have a clear vision of what you want to accomplish (and how much you will need) when trying to reach your retirement goal. There are calculators that can help you determine at what age you might be able to retire, as well as how much you probably need to save and invest to achieve that. There are even online calculators that can show you whether you are saving enough money to live the life you want in retirement. Don’t spend extra money that may come your way, such as a raise; just stash it (at least, half of it) and dedicate it to your retirement plan. Postpone receiving Social Security payment after age 62 and before you turn 70. It can help you boost the money you receive during retirement. Ensure family members are all filled in as account beneficiaries.