Whether you believe in New Year’s resolutions or not, the beginning of the year is the perfect opportunity to look at your goals in a new light.
If you are saving for retirement, 2021 could be your year to get your savings back on track. Even though your financial situation hasn’t changed since 2020, there are a few things you can do to save more money in the new year.
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1. Set up automatic contributions
It is easy to get in the habit of paying all your bills and then throwing the money left over each month into your retirement fund. While this strategy is better than saving absolutely nothing, you may not be saving as much as you should each month.
Setting up automatic contributions to your retirement fund helps make savings part of your monthly routine. By treating retirement savings as just another account that you need to pay, it’s easier to include it in your budget. That way, you won’t just be saving leftovers at the end of the month.
If you have access to a 401 (k) plan through your employer, you can reserve a certain percentage of your salary each month to go to your retirement account. This will make saving even easier, because the money will be deposited into your 401 (k) before you even see it in your bank account. If you have an IRA, you can set up automatic transfers according to the schedule you choose, making it easier to save consistently.
2. Enjoy the combination of 401 (k) contributions
Employer contributions are basically free money, and if you don’t take advantage of them, you may be leaving thousands of dollars on the table.
The employer’s average correspondence is around 3.5% of a worker’s salary, according to data from the Bureau of Labor Statistics. If you’re earning a salary of, say, $ 60,000 a year, that’s $ 2,100 a year in free money. While it may not seem like much now, if you are consistently winning the full game year after year, it may sound substantial.
Let’s say you are earning $ 2,100 a year in matching contributions and you are also earning an 8% annual rate of return on your investments. At that rate, these corresponding contributions would add up to about $ 100,000 after 20 years. This is also compatible with the employer. After taking into account your own 401 (k) contributions, you will get twice that amount.
3. Don’t be too conservative with your investments
Finding money to save for retirement is only half the battle; you also need to make sure you’re investing in the right places.
More than half (53%) of workers are saving at least part of their savings for retirement in savings accounts, according to a survey by the Certified Financial Planner Board and Morning Consult. Savings accounts may seem like a safe place to park your money, but they are more risky than you might think.
The highest interest rate you will see on a savings account is usually around 1% to 2% per year, which may not keep up with inflation. The S&P 500, on the other hand, has historically achieved an average rate of return of 10% per year.
This does not mean that you should never use savings accounts, because they are still good options for short-term financial goals, such as creating an emergency fund. But if you want to have the best chance of reaching your long-term retirement goals, you can’t afford to play it safe.
You don’t have to be rich to save more for retirement. No matter what your financial situation is, taking advantage of these strategies can help you start the new year on the right foot.