Did you know that the average person in their 50s has approximately $160,000 in their retirement account? Although this might seem like a lot of money at first, it’s possible to save exponentially more if you start doing so at an early age.
When it comes to retirement planning, establishing a solid financial cushion can seem more difficult than it actually is. We’ve created a brief guide that has everything you need to know about how to stabilize your retirement funds.
Let’s get started.
1. If You Haven’t Started Yet, Start as Soon as Possible
The earlier you start saving for retirement, the better off you’ll be. That’s because compound interest will have more time to work in your favor.
In other words, the money you save will grow at a faster rate. To illustrate, let’s say you start saving $200 per month when you’re 25 years old.
Assuming a 7% annual rate of return, you’ll have saved nearly $1 million by the time you’re 65. On the other hand, if you wait until you’re 35 to start saving, you’ll only have saved $700,000.
2. Contribute to a 401(k) or IRA
If your employer offers a 401(k) plan, take advantage of it. If they offer matching contributions, that’s even better.
If your employer doesn’t offer a 401(k) plan, or if you’re self-employed, you can open an IRA. There are two main types of IRAs: traditional and Roth.
With a traditional IRA, you get a tax deduction for your contributions. With a Roth IRA, you don’t get a tax deduction, but your withdrawals are tax-free.
3. Save 15% of Your Income
Ideally, you should be saving at least 15% of your income for retirement. If that seems like a lot, don’t worry – you can start small and increase your contributions over time.
For example, you could start by saving 5% of your income for the first year, and then increase your contribution by 1% each year until you reach 15%. If you can’t afford to save 15% of your income right away, that’s okay.
Just do what you can and increase your contributions as your financial situation improves. Great ways to get started include minimizing your entertainment expenses, canceling old subscriptions, and finding cheaper alternatives to necessities.
For example, cooking at home instead of eating out every day can save you hundreds of dollars per month in certain circumstances.
4. Invest in a Diversified Mix of Assets
When it comes to investing for retirement, diversification is key. This is due to the fact that it helps to protect you from market volatility. For example, let’s say you invest all of your money in stocks.
If the stock market crashes, your portfolio will take a hit. If you invest in a mix of stocks and bonds, your portfolio will be more resilient. A good rule of thumb is to invest in a mix of assets that’s appropriate for your risk tolerance.
Generally speaking, younger investors can afford to take on more risk than older investors. They have more time to recover from the losses they may experience.
5. Rebalance Your Portfolio Regularly
Once you’ve established a diversified portfolio, it’s important to rebalance it on a regular basis.
Rebalancing simply means making sure that your asset allocation – the mix of stocks, bonds, and other investments in your portfolio – stays on track. To clarify, let’s say you originally allocate 60% of your portfolio to stocks and 40% to bonds.
Over time, the stock market goes up while the bond market remains stagnant. As a result, your portfolio becomes more heavily weighted in stocks. To rebalance, you would sell some of your stocks and use the proceeds to buy more bonds.
This would bring your portfolio back to its original 60/40 allocation. By extension, you will then minimize your overall amount of risk. After all, your retirement fund is supposed to be a safe investment that consistently grows over time. Attempting to increase your gains too aggressively can put your entire portfolio at risk.
6. Maximize Employer Matching Programs
If your employer offers a retirement savings plan, such as a 401(k) or 403(b), take advantage of it.
Employer matching programs are a great way to boost your savings. For example, if your employer matches 50% of your contributions up to 6% of your salary, that’s like getting a 50% return on your investment.
If you’re self-employed, you can still get in on the action by contributing to a Solo 401(k) or SEP IRA. Regardless of your situation, it’s imperative that you take the best steps available to help build your retirement fund.
7. Invest in Yourself
If you want to retire comfortably, it’s essential that you invest in yourself. That means getting a good education and developing marketable skills.
The more valuable you are to employers, the higher your salary will be. The higher your salary is, the easier it will be to save for retirement. If you’re not happy with your current situation, make a change.
Go back to school or get training for a new career. It’s never too late to invest in yourself, and one of the best ways to do so is by increasing your income.
It’s also worth noting that working with a professional is a great investment that you can make in your future. Not only does this allow you to achieve outstanding results, but it’s also a great option for those who might not know where to start. You can check out this page to learn more.
Managing Retirement Funds Is Easier Than It Seems
At first, many people assume this obligation will be overwhelming. The truth is that it’s much more straightforward than you may expect. The above guide has all of the necessary information to help ensure that your retirement funds remain stable as time goes on.
Want to learn more about what we have to offer? Feel free to get in touch with us today and see how we can help.