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Whether or not you believe in New Year’s resolutions, the start of the year is the perfect time to look at your goals in a new light.
If you’re saving for retirement, 2021 could be your year to get your savings back on track. Even if your financial situation hasn’t changed since 2020, there are things you can do to save more money in the new year.
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1. Set up automatic contributions
It’s easy to get into the habit of paying all of your bills and putting the money left in your pension fund every month. While this strategy is better than saving nothing at all, you might not be saving as much as you should every month.
By setting up automatic contributions to your pension fund, saving is part of your monthly routine. By treating retirement savings as just one more bill, it’s easier to fit it into your budget. This way, you don’t just save the notes at the end of the month.
If you have access to a 401 (k) through your employer, you may be able to set aside a certain percentage of your paycheck each month to go towards your retirement account. This will make saving even easier, as 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 on any schedule you choose, making it easy to back up consistently.
2. Take advantage of 401 (k) equivalent contributions
Employer matching contributions are basically free money, and if you don’t take advantage of them, you could be leaving thousands of dollars on the table.
The average employer match is about 3.5% of a worker’s salary, according to data from the Bureau of Labor Statistics. If you earn a salary of, say, $ 60,000 a year, that’s $ 2,100 a year in free money. While that doesn’t seem like much now, if you consistently win the full game year after year, it can increase dramatically.
Suppose you earn $ 2,100 per year in matching contributions and also get an 8% annual rate of return on your investments. At this rate, these matching contributions would amount to nearly $ 100,000 after 20 years. It is also only the employer match. Once you factor in your own 401 (k) contributions, you will have double that amount.
3. Don’t be too conservative with your investments
Finding the money to save for retirement is only half the battle; you will also need to make sure that you invest it in the right places.
More than half (53%) of workers store at least some of their retirement savings 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’re riskier than you might think.
The highest interest rate you’ll see with a savings account is usually around 1% to 2% per year, which may not even keep up with inflation. The S&P 500, on the other hand, has historically achieved an average rate of return of 10% per year.
That’s not to say that you should never use savings accounts, as these are always good options for short-term financial goals like building an emergency fund. But if you want to give yourself the best possible chance of achieving your long-term retirement goals, you can’t afford to play too safe.
You don’t have to be rich to save more for retirement. Whatever your financial situation, taking advantage of these strategies can help you start the New Year on the right foot.
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