How to save for retirement in 2018
If thinking about retirement doesn’t plunge you into a cold sweat, congratulations!
For the rest of us, the cloud of uncertainty surrounding our futures often showers us with doubt. New studies constantly bombard us with ever-increasing figures for how much we’ll need to live when we finally step out of the workforce, and we’re plagued by a nagging fear that we will someday live, old and wrinkly, out of a box.
To squash our anxieties in their tracks, we need to take action. These small, concrete steps to prepare for the future can play an invaluable role in building wealth over time. And the peace of mind born from knowing we’re consistently and carefully working toward our goals is pretty refreshing, too.
Don’t wait.
If you aren’t already contributing to a retirement account, start now. If you aren’t contributing as much as you should be, boost savings now. Seriously, make the change today. Block off time on your calendar right this minute to open an individual retirement account or to talk to your HR person about setting up a 401(k). If you need to bump up your contributions, schedule time to reevaluate your budget and squeeze it in. These actions aren’t difficult, but they’re easy to nudge to the backburner.
After all, the more you invest now, the less you’ll need to save later. Why? Because compound interest is your friend. Investments generate returns. Returns are reinvested. Those additional investments yield more returns, and so on. In other words, investing early grants more time for your money to grow and work harder for you.
Automate.
We’ve said it before and we’ll say it again… The best way to grow your nest egg over time is to pay yourself first. And the best way to do that is to automate your investments so you always prioritize saving for the future and never skimp on contributions — no more stashing away whatever’s left over at the end of the month (if anything).
Start by taking a long, hard look at how much you’ll want to sock away for retirement, and try not to scream when you find out you’ll likely need to save upwards of $2.5 million to retire comfortably[1]. Next, do the math to determine monthly (or weekly) benchmarks required to reach your goal, and set up recurring funding to make sure you’re always on track.
Get your full company match.
Your employer’s retirement savings match is essentially free money, and choosing to pass on the opportunity can cost you big time. Suppose your company matches up to 6 percent on your retirement contributions. For the sake of argument, we’ll say that 6 percent comes out to $240 each month. If you only contribute 4 percent ($160), you’re missing out on $80 every single month, or almost $1,000 every year. And that’s to say nothing of the compound interest you’d earn on that extra $1,000+ over time.
Your employer is literally paying you to save. So unless you are navigating dire financial straits, you would be hard pressed to find an excuse for not contributing at least enough to receive the full match each month.
Take a hard look at fees.
Fees that sound insignificant in the short-term can make a massive dent in your savings over time. In fact, NerdWallet analyzed the long-term impact of seemingly small fees on returns, and found that “1 percent in fees could cost a millennial more than $590,000 in sacrificed returns over 40 years of saving.[2]” Now unless you’re actually Mark Zuckerberg or Emma Stone (in which case, welcome to the M1 blog!), you’re probably not scoffing at more than half a million dollars.
And if Millennials need $2.5 million to retire, a 1 percent fee could slash savings by nearly a quarter. Luckily, M1 offers no-fee traditional and Roth IRAs so your money can potentially earn more for you over time. Check it out.
Take advantage of catchup contributions.
Sorry, Millennials, but this doesn’t apply to you (yet). For those of you over 50, however, catchup contributions present an enormous opportunity to further boost savings as you approach the end of your career. All employees can commit $18,500 each year to 401(k) accounts after the IRS announced a $500 increase in the contribution limit from 2017 to 2018, plus an additional $6,000 a year in catch-up contributions for those over 50. Those investing in traditional or Roth IRAs can sock away an additional $1,000, to raise their investments to a total of $6,500 per year.
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