Retirement.
Everyone has their own definition of the word. Whatever your dream retirement is, whether it’s traveling the world, pursuing a lifelong passion or starting a new, more meaningful career, you’ll need money to make it a reality. Of course, the earlier you start the better but the good news is that, whatever stage of life and career you’re in, it’s never too late to take actions that can help you maximize your retirement savings.
In this post we’ll give you three general guidelines along with three specific tactics you can use to grow your retirement nest egg.
1. Stick to a manageable budget
Reining in expenses takes discipline, especially in a time where the fear of missing out (FOMO) and the pursuit of instant gratification are so pervasive. But setting a realistic budget that leaves money to save while covering your living expenses (as well as money for some entertainment) is achievable for many. The good news is, every dollar you put away now will help you live a better life down the road.
2. Diversify your investments
No doubt you’re familiar with the saying, “Don’t put all your eggs in one basket.” That idea is particularly appropriate when it comes to investing. Everyone’s goals are unique but, for most people, investing across asset classes, industries and geographic regions can protect you from losing too much in the event that any one of your investments take a downward turn.
3. Manage your risk
Deciding how much risk you can tolerate is an important component to successful investing. The fact is, most investments with the highest potential rate of return also pose the highest risk of loss. Finding a balance between maximizing your potential return and minimizing any possible loss is key. Also worth keeping in mind is that your risk tolerance will likely evolve over time. Young investors often focus on growth-oriented investments because they can afford the risk in pursuit of the reward. Older investors, however, tend to shift toward more conservative, income-generating investments as they near retirement age.
4. Contribute to your employer’s 401(k) or other retirement offerings
One of the easiest ways to save for your retirement is to participate in your employer’s retirement plan offerings (usually a 401(k) or 403(b) plan). Your money is often contributed pre-tax, meaning that it will have minimal effect on your current take-home pay (but you will have to pay tax on the money — at the tax rate you fall into at retirement age — when you make withdrawals).
Also, many employers have some kind of match plan in effect. For every dollar you contribute to the plan, they will match it, up to a set dollar amount. You will probably need to stay with the company a certain amount of time in order to become “vested” in the employer’s match, but it is literally free money that you won’t want to leave on the table.
Another thing to consider if you can afford it is to contribute to the maximum dollar amount allowed. This is especially helpful if you are over 50. The 2024 maximums are $23,000 if you’re under 50. If you are 50 or over, you can contribute an additional $7,500 in pre-tax income.
5. Open an IRA
In addition to any employer-sponsored retirement plans, you also have the option of opening an Individual Retirement Account (IRA) that is separate from your employer’s plans. You can open either a traditional IRA or a Roth IRA. Traditional IRAs are funded with pre-tax contributions and are taxed as current income when withdrawn. Roth IRAs, on the other hand, are funded with post-tax monies and withdrawals are tax-free.
6. Pay yourself first
Of course, you have bills to pay every pay period. We all do. But here’s an idea. Why not think of yourself as one of the companies who bill you every month, like a utility? Decide on a realistic amount that you can set aside each pay period then transfer that amount into your savings or investment account before you pay any other bills. You can even set up an automated transfer with online banking. Chances are, you won’t miss the money, and your savings will grow faster with regular deposits.
Let us help
California Bank & Trust offer a full range of retirement savings accounts, including both traditional and Roth IRAs. Try our online retirement calculators to help you compare potential returns from different types of IRAs and other retirement accounts.