Approximately 71% of Americans say their financial planning skills need some improvement, according to a 2020 survey by Northwestern Mutual. Regardless of whether or not you set resolutions for the new year, the beginning of the year is the perfect time to set goals and get your finances on track.
Saving for retirement is a critical goal, and whether you’re approaching retirement age or have decades to go, it’s important to save as much as possible. Here are some painless ways to boost your savings in 2021.
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1. Maximize your employer correspondence
If you are fortunate enough to have a 401 (k) that offers matching contributions from the employer, it is advisable to make the most of them. Equivalent contributions can potentially double your savings with almost no effort on your part, and if you’re not saving enough to win the full match, you’re missing out on free money.
The average employer correspondence is about 3.5% of a worker’s salary, according to data from the Bureau of Labor Statistics. If you are earning, say, $ 50,000 a year, that equates to $ 1,750 a year in free money from your employer.
2. Take advantage of the update contributions
Whether you are investing in a 401 (k) or an IRA, there are limits to how much you can save each year. In 2021, you can contribute up to $ 19,500 a year for your 401 (k) and $ 6,000 a year for your IRA.
However, if you are 50 or older, you are eligible to make upgrade contributions. Recovery contributions allow you to save more than a normal worker. Beginning in 2021, those aged 50 and over can save an additional $ 6,500 per year on a 401 (k) and an additional $ 1,000 per year on an IRA. If you are lagging behind in your savings, these higher contribution limits can help get your finances on track.
3. Automate your savings
It is easy to leave the savings for retirement in the background, saving only the money left in your budget at the end of the month. But with this strategy, you may end up saving inconsistently or not saving as much as you should each month.
By automating your savings, however, you can save a set amount each month. Think of it as if you paid first. When you set aside a certain amount in your budget specifically for retirement, it is easier to keep your savings in check.
You can automate your savings, whether you have a 401 (k) or an IRA. With a 401 (k), you can set up automatic transfers so that a portion of each paycheck goes straight into your retirement fund. With an IRA, you can set up transfers from your bank account to your retirement account on the schedule you choose.
4. Make sure you invest aggressively enough
Most investors have their money spread across a variety of stocks and bonds. The shares are more aggressive because they are more risky, but they also have higher average returns. Bonds present less risk, but have lower average rates of return.
When you have years or even decades to save, you should try to invest more aggressively so that your savings grow as quickly as possible. Although stocks are inherently more risky than bonds, your money has plenty of time to recover if the market slumps.
A common rule to consider is the 110 rule, which states that when you subtract your age from 110, the result is the percentage of your portfolio that must be invested in stocks. Therefore, if you are 35 years old, you should aim to invest 75% of your portfolio in stocks and 25% in bonds.
5. Try to save just 1% more
You don’t have to make significant changes in your life to save more. In fact, increasing your savings rate by just 1% can increase over time.
According to a survey by Fidelity Investments, a 35-year-old person earning a salary of $ 60,000 a year can save an additional $ 85,000 at retirement age simply by increasing his contribution rate by 1%. This results in just $ 12 more per week.
It is never a bad time to save more for retirement. With these strategies in place, you can start the year on the right foot and give your savings a boost.