1. Take Part In Workplace Retirement Plans
Learn if your employer provides a 401K plan or any other contribution type retirement plan. If you are not currently registered, do so today! We will quickly review 5 ways to save at work with a 401K!
If you are young and just starting up in your career, do not put it off, thinking you’ll have a lot of time later to put money away for retirement. The journey of saving for retirement will be easier the earlier you start. This is one of those things that you will regret once you are getting close to 40 and realize you do not have as much saved as you should at this stage of your life.
For example, someone who begin to save $100 a month when they are 21 will have saved over $190,000 when they retire at age 65. If they earn 5 percent a year on their investments, keep in mind by being on top of your 401K you can earn in excess a 5% return. On the other hand, a worker that waits until he is 40 to enroll would need to save over $350 a month to accomplish the same outcome.
Don’t be turned away because you may have to select the funds your plan will invest in. Simply being enrolled in the 401K plan is the most important step. You can research and look at past performance to decide which funds to invest in. These can always be changed with a click of a mouse. Also, a lot of today’s plans include lifestyle mutual funds, these investments are designed to match the age and expected retirement year of the plan participant. This is a basic way to go if you do not want to select your own investment portfolio.
2. Take Advantage of Employer Match Programs
Most employers offer to match the contributions of the employee, up to a specific percent of the worker’s annual contribution. So let’s say last year you contributed $5,000 to your 401K play and your employer will match 30% at the end of the year. Your employer will then contribute $1,500 into your fund from their money! There aren’t many instances you can get a guaranteed 30% return on your investment, this is one so be sure to participate and take advantage of this huge opportunity!
3. Gradually Rise Your Contributions
Remember, the important part is getting started, even if you can only afford to contribute 1% of your salary into the retirement plan. However, your long term goals must be to increase your contributions as often as possible.
We suggest increasing the contribution percentage each time your compensation is increased. If you get a 4% raise, increase your contribution by at least 1-2%. You won’t even notice the money missing out of each check due to the raise you received.
Some plans will automatically increase your contribution once a year. You can deactivate this feature but be sure to increase the amounts on your own pace. Remember that these are pretax deductions so you are saving even more money through taxes.
4. Re-balance Your Investments
During the initial setup of your retirement plan 401K, you must choose how much will be invested in different asset classes such as stocks, mutual funds, bonds or cash accounts. Certain investments perform better than others during certain years and market conditions. After many years however, this can throw your allocations out of wack. You must periodically modify your allocations and re-balance your 401K account by moving money between funds. There are plans that offer automated re-balancing, which can save you the hassle.
5. Don’t Jump Ship Too Soon
Along with getting to an early start, sticking through the tough market conditions is the key to retirement saving success. One of the most common mistakes made by people is to pull out of their positions during market lows. Corrections are part of the stock market’s cycle and there will be pullbacks. Although scary to see your account fluctuate 10% in a single day but you must diversify your assets and stick with it.
A study by the EBRI shows that it normally takes 12 years or more of contributions to a 401K account before you reach a level of financial stability. And also don’t under estimate how much money is enough to retire with. Keep in mind that most retirement experts would not consider the $190,000 saved at the age of 40 to be nearly enough for a successful retirement.
If you are nearing your age of retirement and savings are short of what you require, keep working. Nevertheless, it is much better to maintain working than to run out of cash in the middle of retirement. Also remember, every additional year you continue to work, is one more year of saving. And one less year of living off your retirement savings for a nice bonus.