One of the most common goals people have is to live a successful retirement when the time comes. But how do you know if you are financially on track for something that is possibly many years away? Here are five ways to help maximize your retirement savings:
1. Invest early and often. The younger you are when you start contributing to your retirement plans, the less you need to save. The key is to just start with what you can afford and contribute on a regular basis by setting up an automatic transfer from your account or paycheck to fund your IRA or 401(k).
2. Contribute to the appropriate type of retirement account. If you work full-time, take advantage of the 401(k) or any other employer-sponsored retirement plans, such as a 403(b) or 457 plan. If you're married but don’t work outside the home, make contributions to a spousal IRA. If you're self-employed, are you saving for retirement on your own? If so, do you have the right type of plan? Don't overlook the retirement plan options available to you, like a SEP IRA or Owner 401(k). This is one of the best strategies for building wealth outside of your business.
3. Maximize your contributions. If you cannot currently contribute the maximum to your retirement plan, start with what you can afford and build from there. A good strategy is to increase your contribution each time you receive a raise until you reach the maximum contribution. If you receive bonuses, put part of the bonus into an IRA.
4. Consolidate your retirement accounts. Consider consolidating multiple IRAs and rolling over 401(k)s from previous employers. If you are no longer with a certain company, your money shouldn’t be there either. By consolidating everything into one account, you have more flexibility in terms of investment options and a better picture of your overall portfolio.
5. Determine whether you are on track to meet your goals. It is important to know how much money you need to fund your retirement and to track your progress. This should be done, at minimum, on an annual basis. You can use this Ballpark Estimate tool from the American Savings Education Council to determine whether or not you are currently on track.
Remember, retirement planning is not just about the numbers — it starts with your goals. Know what you want out of retirement and then gradually put money away to get there. Careful planning and a long term strategy can go a long way toward achieving your long term retirement goals and living the retirement lifestyle you desire.
Pamela Plick is a member of the DailyWorth Connect program. Read more about the program here.