The world's best advice is, "Don't blink." Life comes at you fast and your retirement years will arrive whether you've prepared for them or not. It's better to be prepared. If you've already started saving toward your retirement, you're ahead of the game. Chances are there are things you can do to make your retirement dollars grow faster, but you need a plan, you need a goal and you need the determination to follow through.
Make a plan. If you try to make a cross country trip without a map it's easy to get off course. In the same way, trying to save for your retirement without having a detailed financial plan is challenging at best. Start by getting a clear picture of your current financial status. You need to know how much money you have in savings and investments, what your current income is and how much you spend each month. Determine what you need to live on once you retire. Figure out what kind of resources are required to generate that kind of income. For example, the Fidelity website advocates planning to have at least eight times the amount of your annual pre-retirement salary saved up. If you expect to be earning $70,000 when you retire, you should plan to accumulate at least $560,000 in retirement savings between now and then.
Start saving and investing with what you have available, regardless of the amount. The power of compounding works wonders for your retirement money, provided it has enough time. If you invest $3,000 into a tax-deferred retirement account, earning 8 percent, starting when you are 25 years old and continue making the same investment each year for 10 years, and then stop investing, your retirement account will grow to $472,000. If you wait until you're 35 to start making that same annual investment, and continue until you hit 65, you'll invest three times as much money and still have less to show for it. That's the power of the time value of money.
Take advantage of free money and tax benefits. If your employer offers a matching contribution for money you put into a company-sponsored retirement plan, such as a 401(k), it's like getting 100 percent interest on your money. Even if there is no matching contribution, fully funding your company's retirement plan is one of the quickest and easiest ways to make your retirement money grow faster. Contributions to qualified retirement plans are typically made with pre-tax dollars. You get an immediate tax break, and the money in those accounts grows tax-deferred, so your retirement account grows even faster. Once you've maxed out your company retirement plan, you might still be able to contribute to a tax-advantaged traditional or Roth IRA. The more money you can set aside toward your retirement, the larger your nest egg will grow.
- Stocks have outperformed bonds, savings accounts and most other investments over the long haul since World War II.
- Not all retirement accounts are created equal. Retirement money invested in mutual funds or individual stocks is not insured by the Federal Deposit Insurance Corporation or any other federal agency. You could lose money.
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