With the decline of guaranteed pensions, more Americans are shouldering the responsibility of securing their retirement. Unfortunately, many people are falling short of their savings goals.
If you’re concerned about reaching retirement with insufficient funds, here are three actionable steps you can take to improve your financial future.
1. Increase Your Savings Rate
It may sound simple, but increasing how much you save is the most impactful thing you can do to boost your retirement fund. While it may seem daunting, you don’t need to make drastic changes. Even small, consistent increases can lead to significant long-term results.
For example, increasing your retirement contributions by just $200 per month could lead to an additional $400,000 in savings after 30 years, assuming an average annual return of 10%. Finding this extra money can be easier than you think. Here are a few ideas:
- Cut unnecessary expenses: Consider canceling unused memberships or reducing discretionary spending.
- Redirect raises: When you receive a raise, put that extra money directly into your 401(k) or IRA before you get accustomed to spending it.
- Gradually increase contributions: If you’re currently contributing 5% of your income to your retirement account, increase that to 6%, and keep gradually bumping it up over time.
To ensure you stick to this plan, automate your savings. Arrange for contributions to come directly from your paycheck into your 401(k) or set up automatic transfers to your brokerage account. Automating the process makes saving effortless and consistent.
2. Choose the Right Investments
Having the right investment strategy is just as important as saving. You want to strike a balance between risk and reward by having a diversified portfolio.
Avoid overly conservative investments, especially if you’re younger, as they may not generate the returns you need to grow your wealth over time.
Consider the following:
- Focus on stocks: Stocks have historically provided the best returns for long-term investors. If you’re unsure about picking individual stocks, a simple S&P 500 index fund is a great option. It offers broad exposure to around 500 of the largest U.S. companies and has averaged a 10% annual return over the long term.
- Minimize fees: Avoid high-fee investments like actively managed mutual funds, which can eat into your returns. Low-cost index funds, such as those tracking the S&P 500, often charge minimal fees, allowing you to keep more of your earnings.
A diversified, stock-heavy portfolio will help maximize your growth potential while minimizing unnecessary costs, giving you a better chance of achieving your retirement goals.
3. Work on Boosting Your Income
If you’re worried about your retirement savings, one of the best ways to get ahead is by increasing your income. Earning more allows you to contribute more to your retirement accounts, and it can also increase your Social Security benefits.
Social Security payments are based on your average earnings over your working years, so a higher income leads to larger retirement checks.
Here are a few strategies to boost your income:
- Ask for a raise: If you’ve been at your job for a while and are performing well, consider negotiating for a salary increase.
- Pursue new skills: Take courses or certifications that make you more valuable in your current job or open up opportunities for higher-paying roles.
- Explore side gigs: Many people supplement their income through freelance work, consulting, or part-time jobs. Even a small increase in income can significantly improve your retirement outlook.
If you’re concerned about having too little saved for retirement, taking these three steps can help you get back on track.
Increasing your savings rate, choosing the right investments, and boosting your income can significantly improve your financial security in retirement. By making small changes now, you can ensure a more comfortable future and reduce your financial worries.
FAQs
How much should I increase my savings to improve my retirement?
Even small increases, like an extra $200 per month, can lead to significant growth over time, especially if you have many years until retirement.
What’s the best investment strategy for retirement savings?
A diversified, stock-heavy portfolio with low-fee index funds, such as an S&P 500 index fund, is a great way to maximize returns over the long term.
How can boosting my income help my retirement savings?
Making more money allows you to contribute more to your retirement accounts and increases your Social Security benefits, which are based on your average earnings.
How do I automate my retirement savings?
Set up automatic contributions from your paycheck to your 401(k) or arrange automatic transfers from your bank account to your brokerage or IRA account.
Why should I avoid high-fee investments?
High-fee investments, like actively managed mutual funds, reduce your returns. Low-cost index funds offer broad diversification and keep fees to a minimum.
