More than half of adults in their 40s have less than $100,000 saved for retirement. That's according to a 2020 survey by TD Ameritrade. If you're in that group, you might be a tad anxious about funding a quality retirement.
The good news is, you still have time to shift your retirement savings into overdrive. Try these four simple moves today -- and watch that retirement balance pick up speed.
1. Optimize your 401(k) investment mix
If your retirement account balance isn't growing fast enough, you could be investing too conservatively. You can do a quick check on this by viewing your 401(k) investment selections by asset class. You might see this option labeled in your account as an asset allocation report.
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The composition of your portfolio between stocks and bonds largely drives the account's growth potential and risk level. A high percentage of stocks provides a solid growth opportunity, but also high risk. A low percentage of stocks provides more stability, but less growth potential.
The right investment mix for you should be a function of your age and tolerance for share-price volatility. You can quickly calculate a starting point to figure this out by subtracting your age from 110. The answer is a guideline for the percentage of stocks that should be in your retirement account.
If you're 45, for example, this formula recommends you'd hold 65% stocks and the remainder in bonds and cash. Adjust that percentage higher if you can handle volatility and lower if you can't.
Check the number against what's actually in your 401(k). You might land on stock exposure of 70%, for example. If you're holding 40% stocks and 60% bonds, you're invested too conservatively.
2. Move into low-fee funds
Another trick to steer your retirement savings to faster growth is swapping out high-fee funds for low-fee funds.
All funds charge you fees. The amount of the fee is represented by the fund's expense ratio. A 0.01% expense ratio translates to $1 in fees for every $10,000 you have invested.
Expense ratios can vary dramatically -- from 0.01% up to 1% or more. You'll want funds that are in the low end of that range, so more of your money is working for you.
Index funds tend to have low expense ratios. In particular, an S&P 500 index fund is a popular choice for a low-cost stock position.
3. Raise your 401(k) contribution rate
You already know that raising your contribution rate will shift your savings momentum into a higher gear. What you may not know is that this strategy costs less than you think.
Say you make the median salary in the U.S. of $51,428. Your bi-weekly gross pay should be about $1,459, assuming:
- You're a single filer.
- You pay 6% in state and local taxes.
- You currently contribute 6% of your pay to your 401(k).
If you raised your contribution rate to 8%, you'd add about another $39 to your 401(k) in each pay period. And here's the fun part -- your net pay would decrease by only about $32. You pay $32 for a $39 contribution because your deductions are pre-tax.
Neat, right? It's like free money. The more you contribute, the more you could save.
4. Split future raises
If you really want to turbocharge your retirement savings, commit to splitting your future raises -- half goes to you and half goes to your 401(k).
Let's go back to the earlier scenario where you make $51,428 and you're contributing 8%. With 20 years left in your career, you could amass about $194,775 in that 401(k) if it's returning 7% annually, on average.
But what if you got a big promotion and split the raise with your 401(k)? With an 8% raise, you'd increase your contribution rate from 8% to 12%. That would add $75,000 to your account balance after 20 years.
Step on the gas and save
Saving for retirement can feel like a race against time. If you fall behind, you have to step hard on the gas to catch up.
Do that by optimizing your investment mix, switching to low-fee funds, and increasing your contribution rate at every opportunity. Soon enough, you'll see momentum build, taking you closer than ever to reaching your savings goals.
