Wednesday , 17 April 2024

20 Ways to Increase Your Savings and Retire Rich

…Daydreaming about retirement is easy, but saving for it, however, takes time and effort — and is something a lot of Americans struggle with –  but there are strategies that can help make the process easier. Here are 20 ways to pad your bank account before it’s time to retire.

The original article (by Cameron Huddleston) has been edited here by for length (…) and clarity ([ ])

1. Eliminate Unnecessary Expenses

…Review bank statements for any unnecessary spending…You might uncover certain expenses for things you are not even using, such as club memberships, subscriptions, automatic charges for services you’ve never used…

[Also read: 6 Guilty Pleasures That Will Destroy Your Budget]

2. Start Saving Early

…Start saving money as soon as you earn it. Thanks to the power of compound interest, even small monthly contributions to a retirement account can grow over time to a sizable nest egg. The more time you have, the more your money will grow. For example, if someone starts saving $350 a month at age 25, increases that amount by 2.5% each year and earns 7% annually, he will have about $1.4 million by age 67. If he waits until age 35 to start saving, however, he will only have about $654,000 by age 67.

[Also read:

3. Don’t Let Saving Be a Choice

Have contributions to your 401k or other retirement account automatically withdrawn each month or from every paycheck which eliminates the chance that you stop putting money into your retirement accounts…

4. Save at Least 10% Annually

…The median savings rate among Americans is 8.5% but many retirement experts recommend setting aside at least 10% — ideally, 15% — to live comfortably in retirement. If you can’t set aside that much when you’re starting out, start small and increase your savings rate over time, such as by 1% every year.

5. Take Advantage of Your Employer Match

If your employer matches contributions you make to your workplace retirement plan, make sure you’re contributing enough to get the full match. Otherwise, you’re losing out on free money. The most common type of match is 50 cents for every $1 contributed by an employee up to a certain percentage of pay — typically 6%.

6. Save Your Raise — Don’t Spend It

…Put any extra you get from a raise into your retirement account rather than your bank account, i.e., try not to expand your lifestyle if your salary grows…then you won’t have to sacrifice your standard of living in retirement.

[Read: How To Avoid Lifestyle Creep & Create A System For Financial Success

7. Make Catch-Up Contributions

Use catch-up contributions to catch up on retirement savings. In 2018, you can add an extra $6,000 to a 401k, 403b or 457 plan if you’re 50 or older. You can also boost IRA contributions by $1,000.

8. Don’t Fear Risk

For each stage of life, you should invest with as much risk as you can tolerate. Ideally, you should be putting most of your retirement savings into stock mutual funds when you’re in your 20s and 30s. As you get closer to retirement age, you can lower your risk by investing in fixed-income assets, such as bond funds, in addition to stocks or…a target-date fund that will automatically adjust your allocation of stocks and bonds as you approach retirement.

9. Diversify Your Investments

Diversify your portfolio with a mix of stocks and bonds — or better yet, mutual funds.

10. Watch Out for High Fees

If you invest in mutual funds, make sure high fees aren’t eating into your returns. If fees and expenses on your account are 1.5%, your balance will be 28% lower at retirement than if the fees had been 0.50%, according to the U.S. Department of Labor. The investments offered in your 401k likely have varying fees, though, so consider switching to lower-fee savings options.

11. Stay the Course

You might think you’re protecting your nest egg by pulling your money out of the stock market during downturns but what you’re really doing is locking in losses by selling when stocks are down and missing out on opportunities for your investments to rebound…The takeaway: Don’t let emotions kill your investments.

12. Invest in a Roth IRA for Tax-Free Retirement Income

Contributing to a Roth IRA is a great way to pool money you can access tax-free in retirement. You can’t do the same with other retirement vehicles, like a traditional IRA or 401k.

13. Invest in Income-Generating Real Estate

Buy income-generating real estate. The key is to purchase and finance it carefully…

14. Get a Side Gig

Get a second job doing freelance work or turning a hobby into a money-making venture and funnel that extra cash into retirement savings. If your side gig is considered self-employment, you might be able to make contributions to a solo 401k or a Simplified Employee Pension plan, and those contributions could be tax deductible. You can set up either type of account through an investment firm with low fees, such as Fidelity or Charles Schwab.

[Also read:

15. Downsize Before Retirement

If you have a bigger home than you need, don’t wait until retirement to downsize…”Owning” a big house often comes with a fat mortgage payment and high insurance, utility and maintenance costs and all these things take away from your savings capability…

16. Relocate for a Lower Cost of Living Locale

Living abroad or moving to a state with a low cost of living is one way to keep expenses down in retirement [and] if you move while you’re still working, you can beef up your savings to have an even richer retirement…

[Also read:  

17. Find an Employer With a Better Retirement Plan

An employer that offers a 401k match is good, but one that provides a pension that creates a lifetime stream of income in retirement is even better…Although many employers have shifted away from these so-called defined benefit plans, 20 percent of Fortune 500 companies still offer them to new hires…[and] a job with a pension plan can actually beat one with a slightly higher salary…[so,] if you’re short on retirement, that’s a smart way to go…

[Also read:

18. Don’t Keep Up With the Joneses

Establish a lifestyle where you put savings first…and find a group of friends who also value saving so you don’t feel pressured to spend…[Trying] to keep up with the Joneses will likely hurt your chances of being rich in retirement.

[Also read:

19. Get Professional Help

Hiring a financial advisor doesn’t guarantee you’ll retire rich, but it can increase your chances. The right professional can help you create a comprehensive financial plan and stick to it…

[Also read:

20. Don’t Gamble on Your Future

Buying lottery tickets isn’t a trick to retiring rich — neither is ignoring your retirement savings. Rather than hope you hit it big someday, establish a strategy to save for retirement. Come your golden years, you’ll be set with retirement savings that last.

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