It’s hard to believe that the year is more than half over and students will be headed back to school in just a few weeks. Now is an excellent time to ask yourself if youre making progress with your retirement savings.
Many Americans make the mistake of procrastinating when it comes to retirement planning. Some wait until their fifties or sixties to start saving, while others don’t ever save at all. The good news is that by taking some simple steps today, you can prepare for your future. Here are eight easy ways to get your retirement on track.
- Analyze your monthly expenses. Are you aware of how much youre spending each month? Overspending can be detrimental to your retirement savings. Analyze your cash flows for the last several months and figure out where all of your money has been going. Reduce unnecessary expenses and consider automating contributions to a retirement account such as a 401(k). Try to save more than what you pay in taxes on each paycheck, or at least 30 percent of your gross monthly income.
- Take advantage of company matching benefits. If your employer offers retirement benefits such as company matching on a 401(k) plan, take full advantage of it and dont leave money on the table. You can also ask your HR manager if your employer offers profit-sharing on retirement accounts. Generous companies can contribute up to 25 percent of their operating profits per employee, up to a total employee-plus-employer contribution of $53,000 in 2016. For example, an employee who maxes out his or her 401(k) by contributing $18,000 can receive up to $35,000 in employer match and profit-sharing.
- Use retirement accounts with tax advantages. Just as there are many different ways to save, everyone has unique retirement needs. You may want to consider using retirement accounts that are tax-friendly, however, to keep more money in your pocket on a short and long-term basis. Examples include pre-tax 401(k)s and Roth IRAs.
- Experiment with a retirement calculator.Input your current savings, income, investment risk preferences, and monthly expenses into a retirement calculator to get an idea of what your cash flow could look like in retirement. There are various calculators on the web that you can experiment with. Playing around with the different inputs can show you can improve you retirement by increasing your contributions. Take a look at the examples below using CNN Moneys retirement calculator, which assumes a life expectancy of 92. If this individual simply increased his or her savings rate from 20 percent to 25 percent, an additional $700,000 could be generated by age 67.
- Diversify and adjust your asset allocation as you age. Every individual has his or her unique investment style and risk preferences. But just as you shouldnt put all your eggs in one basket, you should think twice about putting all of your retirement savings into only one type of investment. You can diversify your retirement portfolio by acquiring a variety of investments such as stocks, bonds, exchange-traded funds (ETFs), real estate, private investments, and commodities with both domestic and international exposure.
As you approach retirement, focus on protecting your capital and reducing your portfolios volatility. Adjusting your asset allocation to be weighted more towards government or municipal bonds is one approach, such as using a bond weighting equal to your age.
- Minimize fees. Be careful not to let expensive investment fees compound over time and take away the full earnings potential of your retirement accounts. Pay attention to how much youre paying in advisory fees, commissions, management fees, and front-end load fees. Compare fees for similar products and services to reduce costs. There are lots you can choose from.
- Rebalance on a regular basis. Get in the habit of checking your retirement accounts regularly to see if your asset allocation has shifted out of alignment with your targets. Rebalancing can help keep your financial goals and risk preferences on track. As you age, you may also want to consider shifting into a more conservative investment strategy.
- Get educated on Social Security. Even if you dont plan on retiring for decades, you should take a few minutes to create an online Social Security account today. After youve set it up, check your online profile for accuracy and review your projected Social Security benefits. Understand that your eligibility changes based on your income, marital status and how old you are when you start to collect benefits.