Am I saving enough for retirement?
Life is unpredictable, and even the best-laid retirement plans can be thrown off track. Avoid these common financial pitfalls and increase your chances for a secure retirement.
Make sure you're saving enough
How much do you need to save for retirement? Industry experts generally suggest you save between 10-15% of your pay during your working life to replace 75-85% of your income at retirement. If you cannot save 10-15% now, you could start out saving 6% and increase your savings rate each year until you reach this goal.
Have an emergency fund
What does an emergency fund have to do with retirement savings? If the unexpected occurs—such as a big auto repair bill or a medical emergency—your emergency fund can save you from raiding your retirement account.
Typically, an early withdrawal from a retirement account will cost you an additional 10% penalty from the IRS. This can significantly impact your savings and potentially limit future earnings from investments.
To prevent an early withdrawal, try to keep six months of expenses in a savings account for a rainy day.
Take calculated risks
Consider investment selections that are appropriate for your age and risk tolerance. Selecting the right mix of investments can boost your savings and help your earnings outpace inflation.
Many of us prefer not to take risks with our money. While this can often be a wise move, it might be unwise when it comes to saving for retirement.
That’s because retirement saving is a long-term investment strategy. Investments that experience more ups and downs may also have a greater potential to grow your savings in the long run.
If you still have many years before retirement, you'll experience fluctuations in your account. But remember, you have the biggest asset of all—time—to grow your retirement nest egg.
Reprioritize college savings
If you fund your children's college savings at the expense of your retirement account, you may be doing yourself—and them—a disservice. The reason is simple: You can borrow to fund an education, but not to fund your retirement.
Explore all the options available to pay for college, such as loans, grants, scholarships and selecting an affordable, high-value college—then fund your retirement first.
Know when to make changes
It's good to schedule periodic checks of your account, at least annually. As your investment values grow, you may find that you have more money in faster-growing, and potentially riskier investments, than you had originally intended.
When this happens, you may want to shift some money back to your original investment selections. This is called rebalancing.
If you experience a major life change, take a look at how you're invested. It may be a good idea to consult with a financial advisor to help you make adjustments to your long-term investment strategy.
The bottom line
The decisions you make today will impact your retirement tomorrow. Be smart with your savings and wise with your investments and you'll increase your chances for a secure retirement.