On average, workers believe they'll need $1.9 million to retire comfortably, according to a recent Charles Schwab survey, but only about half of them are confident they can get there. If you're in the half who stay up worrying about how they'll afford retirement, you'll be glad to know there are some simple tricks to start growing your retirement savings more quickly right now. We'll look at four of them below.
1. Claim your full 401(k) match
Workers with a 401(k) that includes a company match should do their best to contribute at least enough every year to get the full match. It might only be a few hundred dollars, but it could still be worth a significant amount of money in a few decades.
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Let's say you qualify for a $500 employer 401(k) match if you contribute $500 to your retirement account yourself. If you do this every year for 30 years and your investments earn a 7% average annual rate of return, your matching contributions alone would be worth nearly $50,000. And you'd have close to $100,000 when you counted the $500 you put in yourself annually. That's not enough to retire on, but it's definitely a good start. If you qualify for a larger match or contribute more money on your own, you could easily end up with hundreds of thousands of dollars.
Talk to your company's human resources (HR) department to learn if it offers a match and what you have to do to get it. Ask about the vesting schedule, too, if you haven't been with your company long. This determines when you're able to keep your employer-matched funds if you leave the company. Quitting too soon could mean forfeiting some or all of this cash.
2. Automate your contributions
It's much more difficult to save for retirement if you have to remember to set aside money every month and make your contributions manually. Fortunately, most brokers today enable you to automate your contributions so you don't have to think about them. This helps create the habit of regular retirement savings, and that might be all it takes to jump-start your nest egg's growth.
Check with your broker or your company's HR department to learn how you can automate and update your contributions. You might be able to choose between setting aside a certain dollar amount every month or a percentage of your income.
Contributions to workplace retirement plans, like 401(k)s, automatically come out of your paycheck, but you might have to link a bank account if you want to set up automatic transfers to an IRA.
3. Choose low-fee investments
The amount you're paying in fees affects how much you end up with overall. There's no way to avoid fees entirely when investing, but if you choose your investments wisely, you can keep costs down.
One of the best low-cost investment options for most people is an index fund. These are mutual funds or exchange-traded funds (ETFs) that are designed to mimic a market index, like the S&P 500. Because they're trying to copy an index's performance, not beat it, there's less work for fund managers to do. That means you can reap the rewards of the index's performance at a much lower cost than you'd pay with most actively-managed mutual funds, where fund managers have to do a lot more buying and selling.
Whenever possible, try to keep your total annual fees under 1% of your assets. A 1% fee might not seem like much when you're only paying $100 for every $10,000 you have invested. But it's going to sting a lot more when you have $500,000 invested and you have to give away $5,000 to cover your investment fees for the year.
4. Reinvest your dividends
Some stocks pay dividends. These are excess earnings the company passes on to shareholders, usually quarterly. How much you get depends on how the business has been doing and how many shares of its stock you own.
You have the option to cash out these dividends and spend them on whatever you like, but it's often smarter to reinvest them. Many brokers enable you to do this automatically. These reinvested dividends will enable you to purchase more stock, which will in turn lead to more dividends, and it'll continue to snowball over time.
You don't have to try all of these suggestions. Even one or two can make a difference in how quickly your retirement savings grow. Think about which of them make the most sense for you and then try them out. If you'd like, keep track of how much more you're saving because of these tips, to help you stay motivated to continue with them.
