Retirement savings is not a game, but it is definitely a strategy where you can win. But it will take proactive measures on your part if you are to end up with a comfortable retirement in the end. Here are some of the best strategies to ensure you are on top when it matters most, post-retirement.
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Start as early as possible
The best way to boost your retirement savings is to start as early as possible. Not only does this give you more time to throw money away, but it allows compound interest to work its magic. The sooner you can start saving, the easier it will be to meet your retirement savings goals. Of course, early in your life is the hardest time to save, as your income is probably the lowest it will ever be. But one look at the math should be enough to motivate you to get started as soon as possible.
If you want to hit a $1 million retirement nest egg by age 65 and start at age 35, you’ll need to save about $671 a month, assuming an 8 percent return on your investments. But if you start in your 20s instead, you’ll only need to invest about $190 a month. This is an incredible difference and relieves your monthly burden in the long run by a dramatic amount. Looking at it another way, if you start saving the same $671 a month at age 20 instead of 35, you’ll end up with closer to $3.5 million.
Pay yourself first
A key strategy for winning retirement savings is to “pay yourself first.” This means you should set aside your investment contributions before paying other obligations, even utility bills. If you can learn to live off what you earn after your savings, you’ll master the art of saving for retirement. Working in reverse, where you instead contribute what is left over at the end of the month, typically ends up with a zero contribution amount.
Automate your savings
It can be difficult to diligently stick to a long-term savings and investment plan. Human nature makes it easy to divert money from your retirement savings to anything from regular bills and emergencies to discretionary expenses like eating out or going to a concert. The best way around this trend is to automate investment contributions. When the money automatically leaves your bank account each month, you’ll never forget to make contributions and the money will leave your account before you can spend it.
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Avoid being too conservative
Some investors view their retirement savings as conservative investments that they don’t want to lose. While no one wants to blow up their retirement account, investing too conservatively can be just as problematic. If you start saving in your 20s or even 35 or later, you probably still have 30 or more years until you retire, which means your money has time to bounce back from dips. Over such a long period of time, it’s worth investing in higher-growth options like stocks rather than lower-cost choices like CDs or treasuries, which can actually have a negative yield after accounting for inflation.
Maximize your employer match
If you work for a company that offers a 401(k) plan, your employer will likely match at least a portion of your contribution. For example, your business might match 100% of the first 5% of your income that you contribute to the plan. That’s the closest you’ll likely ever get to free money, and those annual contributions can really add to your retirement value in the long run. This is one of the best ways to maximize your retirement savings.
Choose Accounts with tax advantages
If you can get a tax deduction on your retirement contributions — as you can with a 401(k) plan or traditional IRA — or if you can make tax-free withdrawals from your retirement account — as you can with a Roth IRA — you can get ahead of the savings game. for retirement. Any dollars you can save for retirement instead of turning it over to the taxman will help you build your nest egg in the long run.
Commissions are nothing more than a brake on investment results. In this era of no-load mutual funds, no-fee trading, and no-fee accounts, there’s no reason to pay more advisory or management fees than necessary. Every dollar that goes out of your pocket to pay for services is another dollar that won’t go to your retirement nest egg.
Maximize your income
One of the best ways to increase your retirement savings is to increase your income. This is easier said than done, of course, but it’s just simple math. For example, if you’re trying to subtract $500 a month for retirement, it’s much easier if you’re making $5,000 a month instead of $2,000 a month. Always be on the lookout for ways to boost your income, whether through promotions, side gigs, or even a new job entirely.
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This article originally appeared on GOBankingRates.com: How to Win with Retirement Savings
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