If you’re already saving for retirement, congratulations. You’re further along toward ensuring your future financial security than you might think! Your future self will thank you. If you’re like many people, you may have lingering questions, too, like “Am I saving enough?” and “How can I tell?”
7 Ways to Build Your Retirement Savings
If you suspect your savings could use a boost, these tips can help.
Use tax-advantaged retirement savings accounts.
Many retirement accounts offer special tax advantages that can help you grow your money. For example, investing in a traditional 401(k) allows you to allot a pre-tax portion of each paycheck toward your total savings.
Aim to contribute at least 15% of your income.
If that amount doesn’t fit into your budget, contribute as much as you can to your retirement plan. If you have an employer plan and your employer matches a portion of your contributions, be sure to contribute enough to earn the full match.
Increase the amount you save over time.
Consider increasing your savings percentage every year or every time your income goes up. Also, consider ways you can trim your budget to save more. Increasing your savings rate by 1% every year can help you reach your goals.
Set smaller interim goals.
Most people will need at least 10 times their final salary by age 67 to maintain their current lifestyle in retirement (for example, a final salary of $50,000 would require $500,000 in savings). Use the chart below as a benchmark for savings; the salary you’re earning at each age could serve as your savings goal.
|1X your salary
|3X your salary
|6X your salary
|8X your salary
|10X your salary
Source: Fidelity Viewpoints
Maintain a well-balanced portfolio.
Holding a mix of asset classes—such as stocks, bonds and cash equivalents—can help you manage investment risk while pursuing attractive returns. The percentage of your total investments that you devote to each asset class is your target asset allocation.
As one asset class outperforms the others, your holdings will stray from their original targets. For example, maybe you set a target of having stocks represent 70% of the value of your portfolio, but if stocks have a good year, you might increase that to 80%. Rebalancing involves buying and/or selling to restore each asset class to its original target. You’ll probably want your targets to become more conservative as you approach retirement.
When you reach age 50, take advantage of catch-up contribution limits for tax-advantaged retirement plans. In 2021, you could contribute an extra $1,000 to traditional or Rothand an extra $6,500 to a Thrift Savings Plan or 401(k), 403(b), or 457 plan.
Make a Plan to Save
- Check your current retirement savings balance to confirm you’re on track. You can use the benchmarks 1X salary by age 35; 3X salary by age 45; and 5X salary by age 55 as a guide.
- Ramp up your contributions if you determine you’re behind. Are you maxing out your employer contributions to your 401(k) or TSP?
- Speak with a financial advisor to explore other ways to increasing your savings.
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This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.