Saving for retirement can be a challenge, and if you're falling behind, you're not alone. In 2020, the average 401(k) account balance was around $25,000, according to a Vanguard report.
If your money is limited, it can be difficult to get your retirement savings back. However, there are ways to restore your savings even if you can't save a lot. Here are effective strategies that can help you boost your 401(k) savings with little or no effort.
Take advantage of employer matching contributions.
Employer matching contributions are essentially free money. You save only 401(k), and your employer will match those savings up to a certain percentage of your salary. If you don't save enough to earn the full match, you're leaving some free money on the table.
Sometimes the slight growth in economies can have a big impact on economies in general. For example, suppose you earn $50,000 per year, and your employer will match your contributions of up to 3% of your salary or $1,500 per year.
Assuming you got an 8% annual rate of return on your investment, that's about what the total savings would be if you saved $1000 per year (and earned a membership fee of $1000) instead of saving $1500 (and earning the full $1,500 match).
In other words, increasing your savings by $500 per year (or just $42 per month) and earning $500 more per year from your employer can earn you $258,000 more throughout your career.
Set up automatic contributions
With automatic contributions, you save a certain amount every week or every month. The advantage of this is that you never have to remember to save and constantly save without thinking about it.
Consistency is important when saving for retirement and sometimes is more important than how much you can save. For example, saving $100 a month equals more than $1,000 a year, even if you feel like you're not saving that much.
If you invest in a 401(k), you can transfer a portion of each salary directly to your retirement account. This can make saving even easier because when the money doesn't end up in your bank account, you can't spend it before you save it. If you are saving on an IRA, you can set up automatic contributions from your bank account to the retirement fund at times you choose.
Make sure you invest aggressively enough.
Finding the money to save for retirement is only half the battle. It is also important to make sure that your investment is working well for you.
If you invest too conservatively, your money will not grow as much. Securities and other conservative investments are less risky than stocks, but it will be much more difficult to reach your savings goals.
For example, suppose you have a goal of saving $500,000 before retirement age, and you have 30 years to save. If you were to invest more aggressively to get a 10% annual return on your investment, you should be saving just over $250 per month. But if you were to invest conservatively and get an annual return of just 5%, you would need to save around $650 per month to reach your goal.
This does not mean that you should invest your savings in risky investments. There are still several ways to invest aggressively and limit risk, such as investing in index funds. By ensuring that at least a portion of your portfolio is allocated to stocks, you can see your money grow faster.
Saving for retirement isn't easy, but there are steps you can take to get the most out of your money. These strategies will help you increase your savings and be better prepared for retirement.
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