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Financial Wellness

How to Boost Your Retirement Savings Before It’s Too Late

When you’re young, it’s easy to live for the present moment—especially when it comes to your financial health. When you have 30 to 40 years of work ahead of you, you may feel like you have all the time in the world to build your retirement savings. To avoid serious financial anxiety in the future, however, it’s important that you start a retirement fund long before you’ll need it. Don’t worry: it isn’t as difficult as you might think, even if you’re not terribly money savvy. Let’s take a look at some of the smart ways you can begin investing in your future today.

Retirement Savings: A Quick Primer

So what exactly is a retirement fund, anyway, and how much money do you need to save? The most common fund type (and the one you’ve probably heard people talk about) is a 401(k) savings plan. A 401(k) plan allows you to contribute some part of each paycheck to tax-deferred investments. This contribution is pre-tax. That means that if you earn $5000 per paycheck and set aside $500 of that toward your 401(k), you’ll only pay income taxes on $4500 of your salary. Your employer may match your contribution up to a certain amount. If you work in public education or for a not-for-profit organization, your employer may offer a similarly structured 403(b) savings plan.

Man using a calculator while doing the match for his retirement savings.
What Exactly is a Retirement Fund? (Image Source: Shutterstock)

Another retirement plan is the IRA (individual retirement account), which allows you to save for retirement and make investments on your own, independent of your employer. The traditional IRA is tax-deductible, while other types, like the Roth IRA, are not. You might invest in both a 401(k) at work and an IRA account outside of it. Check out this information about the types of IRAs available for retirement planning.

Your individual line of work may be tied to a pension or other retirement savings plan. If you work in the public sector, for example, you may be eligible for a federal or state pension plan. Many private employers also offer pensions in addition to 401(k) contributions after a certain number of years of work. For you to make well-informed decisions about your retirement goals, it’s important to know exactly what retirement benefits your workplace offers.

Your 401(k) Match: Take Full Advantage

So about that 401(k) I mentioned: have you set yours up, and are you enjoying the full benefits of your perks at work? If you’re eligible for a 401(k) plan at your job and haven’t taken advantage of it, there’s no time like the present to get started. The person who acts as benefits administrator in your workplace can point you in the right direction.
When you’re deciding how much of your paycheck to funnel into your 401(k), bear in mind that your employer may match your contributions. This usually is up to a certain dollar amount or percentage of your salary. If this is the case, you should be sure you’re paying the maximum you can afford into your retirement fund. You want to take full advantage of the retirement planning benefits your workplace offers and save as much money as you can. Remember that, in addition to planning for your future, putting money into your 401(k) also helps you to reduce the amount of income taxes you pay right now.

Your Investment Assets: Why You Should Diversify 

Apart from your 401(k), do you have investments like stocks, bonds, or mutual funds? Are they currently serving your retirement goals as well as they should be? A quick rule of playing the markets: the more diverse your portfolio, the lower your risk. To ensure you’re seeing a good return on your portfolio, you may want to consider working with a financial planner or other money management professional. He or she can provide you with expert guidance to help you decide where to invest and how much, based on your risk tolerance. If you haven’t started an IRA or other investment account, and the territory feels foreign to you, it’s best to work with a pro. A little professional advice can go a long way in helping you get the most out of your portfolio. Look for someone who will tailor their advice to your specific needs and goals.

Young couple meeting financial advisor.
Consider Working with a Financial Planner (Image Source: Shutterstock)

Stay In for the Long Haul

The first time your stocks or other investments take a hit, it can be tempting to pull your money out of the accounts. After all, if you’re losing money, wouldn’t it be better to move it to a savings account? Keep in mind that, in order to see a return on your investments, you have to hang in for the long haul. Just because you’ve experienced a loss doesn’t mean you’ve made poor investments. You should review them to make sure you’ve allocated your money wisely, but you don’t need to withdraw from the game (and you shouldn’t). If you’re working with a financial planner, ask if there are ways to reduce your risk while enjoying the market’s long-term average return. You can’t reduce your risk entirely, so think of it as striking a balance between risk and reward.

Happy black financial advisor communicating with a couple on a meeting in the office. All of them are wearing protective face masks due to COVID-19 pandemic.
Stay In for the Long Haul (Image Source: Shutterstock)

Build Your Nest Egg Year by Year

If you haven’t started saving for retirement, or if you haven’t socked much cash away yet, don’t despair. There’s a Chinese proverb that says, “The best time to plant a tree was twenty years ago. The second-best time is now.” There’s nothing you can do about the fact that you didn’t start investing five years ago, but there are good choices you can make today. Don’t be too hard on yourself if you’re not able to make huge contributions to your 401(k) or investment accounts. Every little bit helps, and if you stay committed to saving, your small investments will add up. Like anything you do to better yourself, building your nest egg isn’t something you can accomplish in a day. Stay the course, and as the months and years go by, you’ll have retirement savings that make you feel confident about the future.

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