Calculating Risk and Investing Wisely

6 Ways to Boost Retirement Savings

Americans desperately need to boost their retirement savings.

According to the United States Census Bureau, 49% of adults ages 55–66 had no personal retirement savings in 2017.  About 50% of women ages 55 to 66 have no personal retirement savings, compared to 47% of men.

More than half of Americans surveyed say they are behind on retirement savings, with 35% indicating they are “significantly behind.”  Only 20% said they were “right on track” with retirement savings.

The pandemic has exacerbated the retirement concerns of Americans, with 40% stating they are afraid they won’t be able to retire because of financial issues.

If you are among those behind in your retirement savings, here are some tips to help you save more.

How to boost your retirement savings 

Set a goal

You should save a minimum of 10%–15% of your annual income towards retirement.  This goal doesn’t include saving for an emergency fund that can cover your expenses for at least nine months if you become unemployed or disabled.

Your overall savings should be at least 20% of your income, which includes retirement savings, an emergency fund, and other expenses you anticipate over the next decade.

The most important thing you can do to reach your savings goals is to start early.  According to Fidelity, someone who starts saving at age 25 needs to save 15% of their income.  That number increases to 23% for someone who starts saving at 35.

Maximize catch-up contributions

Sometimes, the government enacts legislation helpful to those saving for retirement.  Such is the case with catch-up provisions that permit you to maximize contributions to retirement plans after age 50.

If you are age 50 or older, you can make annual catch-up contributions of up to $7,500 in these plans:

  • 401(k) (other than a SIMPLE 401(k))
  • 403(b)
  • governmental 457(b)

If you qualify, you can contribute $30,000 to your 401(k) in 2023.

You can make catch-up contributions to your traditional or Roth IRA up to $1,000 in 2023.  Catch-up contributions to an IRA share the due date with your tax return (not including extensions). 

Take small steps

Saving enough to maintain your quality of life in retirement can be intimidating, but it doesn’t have to be.  Start by taking small steps, which can turn into “big strides.”

An increase in your retirement plan contribution of 1% may not seem like a big deal, but over time, it can materially improve the quality of your life in retirement.

If you are 35 years old, with a salary of $60,000, and add only $12 per week to your retirement plan, you can have an additional $85,492 when you retire at age 67.

You can compound these results by increasing the amount of your retirement plan contributions by 1% every year until you reach a minimum of 15% of your salary.

Pay yourself first

Adjust your savings rate immediately to take into account raises, bonuses, tax refunds, and inheritances.  Do the same when your cash flow improves because you have paid off debt, like student loans, cars, and mortgages.

Divert as much of your available funds into savings and resist the temptation to spend it all on material things, most of which are depreciating assets.

Focus on your investments

It makes little sense to do the hard work of saving for retirement (both within and outside retirement accounts) but fail to understand how to invest your retirement savings.

Focus on what matters and ignore what doesn’t

Your asset allocation (the division of your portfolio between stocks and bonds) matters.  According to the Securities and Exchange Commission, asset allocation has a major impact on whether you will meet your retirement goals. 

You need to be sure you have enough exposure to stocks to earn the returns necessary to fund your retirement.  Still, you don’t want to be overly exposed to stocks, as this may subject your portfolio to stomach-churning volatility.

One simple way to invest for retirement is to use a target date fund from a low-cost fund family or a LifeStrategy fund.  Target date funds automatically adjust to a more conservative asset allocation as you age.  LifeStrategy funds are available in different asset allocations and automatically rebalance to maintain those allocations.

Costs really matter

According to Vanguard, a leading low-cost fund manager, costs expressed as a small percentage of your assets can have huge ramifications over time. 

If you invested $100,000, earning 6% a year for 25 years, and had no costs or fees, you’d end up with $430,000.

Paying only 2% a year in costs or fees would reduce your account value by a whopping 40%, down to $260,000.

A registered investment advisor can guide you on the basic principles of investing and how to boost retirement savings and keep you focused on what matters and what doesn’t.

It makes little sense to do the hard work of saving for retirement (both within and outside retirement accounts) but fail to understand how to invest your retirement savings.‍


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