About 71% of Americans say their financial planning skills can use some improvement, according to a survey by Northwestern Mutual in 2020. Whether you set New Year’s goals or not, the beginning of the year is the ideal time to set goals. and get your finances on track.
Saving for retirement is a critical goal, and whether you are approaching retirement age or have decades left, it is important to save as much as you can. Here are some painless ways to boost your savings in 2021.
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1. Maximize your employer competition
If you are lucky enough to have a 401 (k) that offers employer contributions, it is wise to take full advantage of it. Matching contributions can potentially double your savings with almost no effort on your part, and if you do not save enough to earn the full match, you will miss out on free money.
According to data from the Bureau of Labor Statistics, the data from the Bureau of Labor Statistics are about 3.5% of an employee’s salary. For example, if you earn $ 50,000 a year, it’s $ 1,750 a year free money from your employer.
2. Make use of the catch-up contributions
Whether you invest in a 401 (k) or IRA, there are limits to how much you can save each year. In 2021, you can contribute up to $ 19,500 a year to your 401 (k) and $ 6,000 a year to your IRA.
However, if you are 50 years or older, you can make contributions. Catch contributions allow you to save more than the average worker. As of 2021, those 50 and older can save $ 6,500 a year in a 401 (k) and an extra $ 1,000 a year in an IRA. If you are going backwards with your savings, this higher contribution may limit you to get your finances back on track.
3. Automate your savings
It’s easy to put retirement savings in the background, and you can only save the cash left in your budget at the end of the month. But with this strategy, you may end up saving inconsistently or not saving as much as you should every month.
However, by automating your savings, you can save a set amount each month. Think of it as paying yourself first. Setting a certain amount in your budget specifically for retirement makes it easier to keep your savings on track.
It is possible to automate your savings, whether you have a 401 (k) or an IRA. With a 401 (k) you can set up automatic transfers so that a portion of each salary goes directly to your retirement fund. With an IRA, you can set up transfers from your bank account to your retirement account according to the schedule you choose.
4. Make sure you invest aggressively enough
Most investors have spread their money across different stocks and bonds. Stocks are more aggressive because they are more risky, but they also see higher average returns. Bonds carry less risk, but they have lower yields on average.
If you still have years or even decades left to save, you need to invest more aggressively so that your savings grow as fast as possible. Although stocks are inherently riskier than bonds, your money has enough time to recover if the market experiences a downturn.
A general rule to consider is the 110 rule, which states that when you subtract your age from 110, the result is the percentage of your portfolio that needs to be invested in stocks. If you say now, 35 years old, you should aim to invest 75% of your portfolio in equities and 25% in bonds.
5. Aim to save only 1% more
You do not have to make significant life changes to save more. Increasing your savings rate by just 1% can increase over time.
According to research by Fidelity Investments, a 35-year-old earning a salary of $ 60,000 a year can save an additional $ 85,000 per retirement age by simply increasing their contributions by 1%. It’s just $ 12 a week more.
This is never a bad time to save for retirement. With these strategies in place, you can start the year on the right foot and boost your savings.