The more money you're able to bring with you into retirement, the more financial freedom you might get to enjoy later in life. And besides, you'll need money to cover your senior living costs, as your Social Security benefits alone are likely to fall short. With that in mind, here some strategies for growing your nest egg into a sizable sum.
1. Take advantage of your full 401(k) match every year
If you're saving for retirement in an employer-sponsored 401(k) plan, you may have a prime opportunity to snag lots of free money for it along the way. And that's a gift you don't want to pass up. Claiming your free match in full every year could boost your savings balance in a very meaningful way.
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Let's imagine your maximum yearly employer match is $3,000. If you claim it every year for 30 years, that alone will leave you with about $340,000 in savings, assuming your 401(k) delivers an average annual 8% return, which is a bit below the stock market's average.
Again, to be clear, that $340,000 would represent the matching portion of your 401(k) only -- not the portion you contribute from your own earnings. If your annual contribution each year amounts to $6,000 -- $3,000 from you and $3,000 from your employer -- you'll end up with about $680,000 over 30 years, assuming that same 8% return.
2. Load up on stocks
When you're years away from retirement, you shouldn't rush to play it safe when investing your nest egg. You need stocks in your portfolio to generate solid growth.
In the example above, investing $6,000 a year at 8% resulted in about $680,000 over 30 years. But a more conservative 5% average annual return would leave you with just $399,000 instead.
3. Diversify within your portfolio
Loading up on just a handful of stocks may not serve your retirement portfolio very well. A much better bet is to diversify your holdings so you can protect yourself from losses during periods of market turbulence and fuel your portfolio's growth during periods when the market is strong.
Now if you have an IRA, you generally get the option to add stocks to your portfolio individually. In that case, aim to invest in at least 25 different companies across a range of market segments – for example, some tech stocks, energy stocks, biotech stocks, and retail stocks.
If you have a 401(k) plan for retirement, you generally can't buy stocks individually. But putting your money into broad market index funds is a great way to invest for the future without having to do a lot of legwork or bear a host of fees. If you're able to put money into an S&P 500 index fund, for example, you'll effectively be buying a piece of the 500 largest publicly traded companies.
It's important to go into retirement with a nice level of savings so you can enjoy that period of life to the fullest. Use these strategies to help build up a strong nest egg that serves you well for many years.
