Investing for retirement is crucial to your future financial security, as Social Security probably can’t fully cover your costs once you stop receiving paychecks. Sadly, many Americans are behind in funding their nest egg, and for good reason – saving money for the distant future can be difficult when you have to think about spending today.
The good news is that there are a few surefire ways to increase the amount you save for retirement. Here are three.
1. Automate your investments
Making your retirement investments automatic is one of the easiest and most effective ways to increase the amount you save. That’s because once you’ve set up an automatic contribution to your pension plan, there’s a good chance you won’t bother changing it. This status quo bias can make saving for retirement effortless.
Setting up automatic investments is really easy with a 401 (k) as all you need to do is talk to the plan administrator at work and sign up for contributions to be taken from your paycheck. Most brokerage firms and banks also facilitate this option, so you can sign up for it even if you don’t have a work plan. Just have the money come straight out of your checking account on payday before you have a chance to spend it on anything else.
2. Focus on retirement savings in your budget
Living on a budget can help make sure you’re saving enough for retirement, especially if you see investing for the future as a must-have bill.
Instead of making retirement savings something you do with the money you have left over, commit to saving a certain amount each month and budget for it with your mortgage or rent, debt payments and other essential expenses.
All that’s left after you have budgeted for retirement savings and necessities may be allocated to discretionary costs.
3. Invest your savings
Finally, many people enter some unexpected money outside of their regular paychecks at some point during the year.
It can come from a tax return, a work premium, a cash gift for a birthday or vacation, or a host of other sources. Whenever you get money that you haven’t yet allocated to a specific need, make a commitment to put it in your retirement accounts so that it can work for you over time.
It is difficult to do this with a 401 (k) because you have to set up contributions with your employer. But you can easily transfer money to a Roth or an IRA at a brokerage firm whenever you want. This is one of the many good reasons why you might want to use one of these retirement savings accounts in addition to a 401 (k), if you have one. IRAs also offer more investment options than most 401 (k) and may have lower fees.
If you are budgeting a fixed amount to save; sign up for automatic contributions and transfer that amount to your retirement savings on payday; and investing some unexpected money, you should be on your way to building the secure future you deserve.