Whether you believe in new year intentions or not, the beginning of the year is the ideal opportunity to view your goals in a fresh new light.
If you are saving for your retirement, 2021 could be your year to get your savings back on track. Even if your financial situation has not changed since 2020, there are a few things you can do to save more money in the new year.
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1. Set up automatic contributions
It’s easy to get into the habit of paying all your bills and then throwing what you have left into your retirement fund each month. While the strategy is better than saving nothing, you may not save as much as you should every month.
By setting up automatic contributions to your retirement fund, you can make it a part of your monthly routine. By treating retirement savings, it’s easier to incorporate them into your budget. This way, you do not just save the pieces at the end of the month.
If you have access to a 401 (k) through your employer, you can set aside a certain percentage of your salary each month to go to your retirement account. This will make saving even easier, because the money is deposited in your 401 (k) before you see it in your bank account. If you have an IRA, you can set up automatic transfers according to the schedule you choose, making it easier to save consistently.
2. Make use of 401 (k) contributions that match
Employer contributions are basically free money, and if you do not take advantage of them, you can put thousands of dollars on the table.
According to data from the Bureau of Labor Statistics, the average employer match is about 3.5% of the employee’s salary. For example, if you earn $ 60,000 a year, that’s $ 2,100 a year for free. Though it may not sound like much right now, but if you earn the full game year after year, it can add up considerably.
Suppose you earn $ 2,100 per year on corresponding contributions, and also earn an annual rate of return of 8% on your investments. At that rate, the corresponding contributions would amount to nearly $ 100,000 after 20 years. It’s also just the employers’ contest. Once you also enter your own 401 (k) contributions, you have the double amount.
3. Do not be too conservative with your investments
Getting money to save for retirement is only half the battle; You also need to make sure that you invest in the right places.
More than half (53%) of workers keep at least a portion of their retirement savings in savings accounts, according to a survey by the Certified Financial Planner Board and Morning Consult. Savings accounts may seem like a safe place to park your cash, but it’s more dangerous than you might think.
The highest interest rate you will see with a savings account is usually around 1% to 2% per annum, which may not even keep pace with inflation. The S&P 500, on the other hand, earns an average rate of return of 10% per annum.
That does not mean you should never use savings accounts, as these are still good options for short-term financial goals, such as building an emergency fund. But if you want to give yourself the best chance to reach your long-term retirement goals, you can not afford to play it safe.
You do not have to be rich to save more for your retirement. No matter what your financial situation looks like, using these strategies can help you start the new year on the right foot.