By Kevin Payne
According to the "How America Saves 2022 report from Vanguard, " participants saved an average of $141,542 up for retirement. However, this statistic doesn't necessarily paint an accurate picture of where Americans stand regarding retirement savings. The same report revealed that the median 401(k) balance is only $35,345, meaning half of the participants fall below this level.
Americans love the thought of retirement. After decades of hard work, we'll be able to enjoy the fruits of our labor, take a breath, and do all the things we've dreamed about from our cubicles. The reality is that many people think about what they will do in retirement more than how they will get there financially.
Retirement doesn't have to be this far-off event with the proper planning. You can take action now to ensure you save enough funds to retire comfortably, regardless of when it occurs. The best thing you can do for "future you" is to take steps now to provide a better future when you decide to retire.
Saving for retirement doesn't happen on its own. It requires work on our part to save enough so we’re covered financially in the future. Follow the steps below to boost your retirement savings.
There's no better time to start saving for retirement than now. By beginning now, you allow more time to take advantage of returns on your investment. It's also a chance to witness the power of compound interest. As you earn interest, it gets added to your principal investment balance to earn even more interest.
Every little bit helps, so invest what you can for now and increase your contributions as your income changes.
Knowing how much money you'll need in retirement can help you understand how much to regularly set aside to reach your goal. Several factors go into retirement calculations, including your age, income, target retirement age, lifestyle demands, marital status, and more.
A retirement calculator walks you through all the details to consider when planning for retirement. Using a calculator also allows you to input different scenarios and target dates to determine the best path to retirement.
Take advantage of an employer-sponsored retirement savings plan if offered. If your employer offers to match your investment, max it out. It's free money to put towards retirement. Contributions to employer plans, like traditional 401(k)s, are taken from your paycheck pre-tax, reducing your taxable income.
Once you've exhausted employer-sponsored retirement accounts, consider other investment options to further save for retirement. Options include traditional and Roth individual retirement accounts (IRAs) and taxable brokerage accounts, which you can easily open online or in person through a brokerage firm and another financial institution.
You can only invest so much annually, depending on the type of account you choose. The IRS sets contribution limits for 401(k) and IRA accounts. Maxing out contributions annually can help you reach your retirement goals faster.
Investment firms often charge fees for investment accounts and services. Robo-advisors are another option to consider and often carry lower fees than traditional brokerage firms. Keeping your fees low can help maximize retirement savings. Compare fees and other costs when choosing where to set up investment accounts.
After setting up your accounts, improve your chances of meeting savings goals by making retirement savings automatic. Set up automatic contributions through your brokerage firm to deposit funds regularly from your bank account to a retirement account.
Retirement savings work best when you leave them untouched to grow over time. Resist the urge to withdraw funds as different financial needs arise. Having adequate emergency savings can provide the cushion needed for unexpected expenses, so you don't have to touch retirement funds.
Not only does withdrawing funds from retirement accounts reduce your savings, but you'll also face costly tax penalties if you're under 59 ½ years of age unless you qualify for an exemption.
Make adjustments as necessary as you inch closer to your target retirement date. Depending on your time horizon, you may need to increase or decrease monthly contributions to meet savings goals. People often adjust investment allocations to lessen their risk as they get closer to retirement.
Even savvy investors may have specific questions about retirement savings, tax considerations, and choosing the best investment options. Consult with a qualified financial professional to get answers to your questions or help set up accounts and contributions. Additional costs may apply for retirement services.