3 Ways to Supercharge Your Savings
Only about 60% of Americans report being confident that they are saving enough for retirement. Many people, specifically, baby boomers are banking on their social security to get them across the finish line. This can be a monumental mistake because social security will only replace about 40% of your preretirement paycheck for average earners, and most people will need 70-80% of their former income. So how do you make up the difference? If you’re falling behind and retirement is coming up quickly, here are a few easy ways to play some catch-up.
Balance risk– stocks can help, but don’t overdo it
A recent report from Fidelity showed that nearly 38% of baby boomers had a higher percentage of their retirement savings invested in stocks. As the market has boomed over the last decade, stocks have proven quite lucrative. But if you are nearing retirement, it might be a good time to have less skin in the game. Although stocks can offer higher returns than other investment vehicles, it can be quite risky to have too much in your portfolio. There is a reason why most 401k’s invest more heavily in stocks for workers in their 20’s and 30’s. It’s because they have more time to absorb that risk and it gives the opportunity for maximum returns. As you get older, it is always recommended to allocate more of your savings toward less volatile investments. A classic rule to follow is to subtract your age from 110. If you are 50 years old, it is considered prudent to have 60% of your portfolio in stocks, and the rest in bonds or mutual funds. If you are going to continue to invest in the stock market, consider high dividend stocks like Dividend Aristocrats. These are taken from the S&P 500 and have to meet the requirement of 25 straight years of consecutive dividend increases. With this option, you can still receive a steady income of dividends even if the price of the stock goes down.
At the end of the calendar year, people over 50 are allowed to make annual “catch-up contributions”. In addition to the federal contribution limit of $18,500 per year, people who meet the age requirements can contribute an additional $6000 to their 401k. This can add a little extra padding to that nest egg.
Make sure you are taking advantage of your employer’s matching contribution
This may sound obvious, but a lot of people do not take full advantage of their company’s matching contribution. Even if they only match 2%, that’s free money… Make sure you at the very least contribute enough to take full advantage of this.
Saving for retirement is an easy thing to set aside for another day. Based on the statistics, quite a few of us are guilty of procrastinating and no longer have the luxury of youth to benefit from the 8th wonder of the world, compound interest. But with these simple changes to your investment habits, you will be well on your way to living comfortably in retirement.