How much do you need to save for retirement? According to Fidelity Investment, you should have invested ten times your annual income by the time you reach age 67. Other experts suggest that you save at least $1 million. A 2020 TD Ameritrade report found that only 14% of Americans age 60+ have saved more than $500,000 for retirement. Americans are significantly behind in their retirement savings. If this is you, here are 7 things to do now to maximize your retirement savings.
If you haven’t saved for retirement, don’t despair. Turn the page and commit today to invest in your future. Make it a top priority in your life, along with debt reduction and maintaining a healthy credit score. If you can manage it, try to meet the retirement savings targets suggested by financial planners. Otherwise, save as much as you can. The longer you wait, the harder it will be to catch up, so start now.
2. Match Your Savings Rate to Your Age
If you’re in your mid-20s, contributing 15% of your income to retirement savings is sufficient. If you’re in your 30s, you’ll need to save more than 15% to catch up. Retirement is a long-term investment, meaning that over the years, your nest egg will grow. If you start later, you’ll need to contribute more to recoup the lost interest you might have earned.
3. Max Out Your 401(k) Contributions
Check the tax laws and make the maximum contribution allowable to your 401(k) each year. Most companies will match your contributions, so you can easily double the amount invested in your retirement account with little impact on your net income. If you don’t have a 401(k), be sure to automate and max out your regular or Roth IRA contributions. Both vehicles are easy tools to help you maximize your retirement savings.
4. Watch Out for Lifestyle Inflation
As you advance through your career, you’ll have more financial resources to commit to retirement savings. The danger, though, is that as your income increases, you might take on more financial obligations due to what is known as “lifestyle creep.” Use your raises or bonuses to invest in your retirement accounts rather than in an exclusive vacation or buying new automobiles. Even if you only receive cost-of-living increases, you can still add to your retirement accounts. If your cost-of-living increase is 4%, for instance, put half in retirement savings and the other half toward your living expenses.
5. Look for Better Interest Rates
Regular retirement accounts such as a 401(k) or IRA may offer more security, but the interest rates are not great. You might get a better return on your retirement savings by investing in the stock market. Stocks can be a safe way to maximize your retirement savings. The market can be risky in the short term, but you’ll earn a much better interest rate over the long term.
6. Save for Emergencies
As you implement a strategy to maximize your retirement savings, you also want to do everything possible to protect your investment. If you don’t have an emergency savings account, you could find yourself dipping into your retirement savings to cover unexpected expenses. Medical and other emergencies frequently liquidate a person’s retirement savings account. Using your credit card to cover emergencies means that more of your monthly income will go to debt payments leaving less for retirement savings.
- If you’re not saving for retirement, start now.
- Reduce your expenses, eliminate debt, and save for emergencies.
- Maximize your retirement savings by taking advantage of free money, like your employer match to your 401(k).