Contributing to your 401(k) and IRA should become second nature, but maybe you cannot always keep up with tour savings, because of other financial commitments.
Here are 3 ways you can catch up with your retirement savings plan:
Take advantage of your employer match
Many companies now offer to match a part of your 401k account.
Say the company you work for matches 50 cents for every dollar you invest, up to a certain limit (say 6%).
This means that, if you invest 6% of your salary, your employer will additionally invest 3%, meaning you have 9% of your income towards your retirement savings.
Not shabby at all.
Is it difficult to do so? It probably is, since you’d like to spend money elsewhere. But, it’s ‘free’ money you are leaving on the table, so make an effort.
Save money from elsewhere (say postpone a new gadget or get some less expensive clothing for a while and match your employer’s contribution).
Your older self will surely thank you.
Have any windfall? Invest it directly into your 401(k) account. In time, it will add up.
Invest your retirement savings money into tax-advantaged accounts
Standard brokerage accounts don’t offer tax benefits, this means that you still pay money for what you earn that year and will be taxed continuously on your investments as you make them.
IRA, 401(k) and other retirement accounts have tax benefits.
Some allow you to postpone paying taxes until you retire or pay income tax upfront and enjoy exemption from capital gains and interest taxes afterwards.
This is why you should look for tax-deferred and tax-exempt accounts for your retirement savings.
Diversify your investments, but don’t buy-sell too much
For your retirement savings to be on track and avoid any losses during the various financial crashes that happen in a country during your lifetime, you should always diversify your portfolio.
There’s a saying we all know: don’t keep all your eggs in one basket.
Still, many investors are so caught in this ‘game’ that they inevitably lose money, when they keep on buying and selling their assets without waiting patiently to see them in action.
While re-balancing your portfolio is a good way to keep your assets on track, excessive churn will negatively impact your portfolio:
- you’ll pay more in transaction fees
- more transactions might trigger more taxes
- you’ll trade out of fear or greed and we all know these never work in your favor.
Keep emotions out of your retirement savings strategies
One of the worst emotions when it comes to investing, saving money or doing anything financially related.
Retirement planning is not different, if you let your emotions control you, the results will be disappointing.
Economical crises happen every few decades.
Market crashes, followed by frenzy selling to ‘cut losses’.
Weird enough, while some go bankrupt, the ones who can wait and buy at rock bottom prices are the ones who profit from this all.
Don’t be the panicky seller, who exits the markets with huge losses. Be the patient one, who sees an opportunity to buy low, not to lose money.
The people who afforded to keep on track with their investments during 2008, saw the market recovering few years later and setting growth records one after another.
During your lifetime you should slowly become more financially independent and be able to wait for the bad tides to turn.
This can be done by having an emergency fund in place, by smartly budgeting and knowing how to cut costs when needed.
Keeping your family out of debt and seeking more earning opportunities will all help you massively invest in your retirement savings plan and also wait out until you can perform transactions in your advantage and not in your loss.