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Thayer Partners Blog

5 Tips for Saving for Retirement

[fa icon="calendar"] Mar 2, 2016 9:00:00 AM / by Chris Wilmerding

Chris Wilmerding

5_Tips_for_Saving_for_Retirement.jpgHaving enough money saved for your retirement years can allow you to have the comfortable lifestyle that you seek. Gone are the days of depending on your company’s pension plan, and, if you plan to rely solely on Social Security checks for your retirement income, you’ll likely be very disappointed. Pension plans are dying out, and the government is offering less income for Social Security. In this day and age, saving for retirement is largely up to you. Your retirement income increasingly depends on how much you save and how you manage your money. So you need to be proactive and prioritize saving for retirement if you want to live comfortably.

Use these tips to start saving for retirement so you can help have the lifestyle you want during your retirement years.

1. Start Early

The most important tip we can give you for saving for retirement is to start early. Ideally, you should start saving the moment you get your first job, in your late teens or early twenties. But if those days are long past, you need to start playing catch up as soon as you can. Don’t delay saving. Make it a priority to put money aside for your retirement years, even if that means sacrificing some dinners out on the town, vacations, or golf days during your working years. You’ll regret it if you wait until you’re nearing retirement to start saving.

Starting early and contributing less is actually a better idea than starting late and contributing more. You’ll likely end up with more money (assuming the market grows over that long period of time), without having to put as much in. You’ll be able to let the market growth help you get to a successful retirement. The earlier you start, the better chance you have of having a comfortable retirement.

 

2. Maximize Your 401K Contributions

Every once and a while, the IRA changes its rules for 401K contributions, and it would behoove you to keep up to date on maximum limits in order to fully maximize your contributions every year. In 2015, the IRS increased the contribution limit from $17,500 up to $18,000 and catch-up contributions also saw a $500 increase, from $5,500 to $6,000 a year. So if you’re 50 years old or older, you can contribute a maximum of $24,000 a year, which you should take advantage of to make the most out of your 401K plan.

3. Paying Down Your Mortgage vs. Contributing More to Your 401K?

A common conundrum when it comes to retirement savings is whether to pay down your mortgage early or contribute more to your 401K if you have extra money after paying down your household expenses. We recommend always maxing out on your 401K first because this will give you the best chance of building a nice nest egg for retirement.  Accelerating the pay down of your mortgage may leave you with zero debt well before retirement, but it might also leave you with a zero balance in your retirement account.

4. Start Saving Something, anything…

We recommend that everyone just start saving—just save a little if that is all you can afford.  Investing a little bit of money into a broadly diversified index fund, for example, can be a good idea because there’s a good chance if you save consistently over a number of years and the market goes up over that time that you will likely have a nice little nest egg by retirement.   A little can go a long way.

5. Automate Your Savings

To make sure that you’re prioritizing saving for retirement instead of spending all of your money and having nothing left over to put into a savings account, set up a monthly transfer from your bank account a few days after you get paid. Automatically transfer $100, $500, or even $2,000, whatever you can afford, into a brokerage account and consider buying a globally diversified equity index fund, for example. If you do this over 10, 20, or 30 years, you will almost forget about it, and you’ll likely have a lot of money at retirement assuming the markets grow at a reasonable annual rate. Some brokerage houses let you add money to an index mutual fund without the cost of a commission after the first purchase has been made.

 

Investments are subject to risk, including the loss of principal. Because investment return and principal value fluctuate, shares may be worth more or less than their original value. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Past performance is no guarantee of future results. Talk to your financial advisor before making any investing decisions.

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Topics: Saving For Retirement

Chris Wilmerding

Written by Chris Wilmerding

Chris Wilmerding is Principal of Thayer Partners, an independent investment management firm located in Westwood, MA providing financial planning and wealth management counsel to individuals and their families.

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