Saving for retirement is an important part of financial planning for most Americans. Now that pensions are no longer widely used and Social Security simply not enough to cover the costs of retirees, it is up to individuals to set aside money for their later years. But if you do it right, relaxation and recreation will become more important than work and earning once was. How much you need to save for retirement depends on where you live and what lifestyle you expect to live. But saving $1 million is a goal many set for themselves, and there are a number of steps you can follow to get there. If you want help increasing your retirement savings, consider: working with a financial advisor.
Start saving early
For young workers, especially those just out of college or getting their first ‘real job’, retirement can still seem a long way off. After all, you still have at least 40 years or so on the job before it’s time to think about which beach you plan to park yourself on. Although retirement may seem like a distant dream, it is important to start saving for it as soon as it is financially possible.
That’s because compound interest is key here. When you save for retirement, you invest the money, often in mutual funds, stocks, bonds, or ETFs that market index. Ideally, the shares you buy in different companies grow in value over time.
Investing early gives your money more time to grow. Some studies even show that if an employee aged 22-32 saves for retirement and then quits, he will have more money than someone who saves from age 32 until retirement, if the total salary and contribution remains the same. Long story short, if you want to have $1 million in retirement savings by the time you’re ready to retire, it’s important to start saving from scratch.
Ensure a strong asset allocation
Even if you start saving for retirement from the first day you get a job, if you don’t make smart investments, you can never become a millionaire when you retire. However, make sure your portfolio has an appropriate asset allocation is one of the most important moves you can make. Fortunately, there is a general formula you can follow to give yourself the best chance of having the money you want when you retire.
In general, you need to be very aggressive with your asset allocation strategy early in your career. This means that you should orientate your investments on: shares and other shares. While these investments are on the riskier side, they have the potential to yield great returns. That’s because you can afford to take these risks early in life with the belief that you’ll grow enough.
As you get older and near retirement, your asset allocation should begin to taper to a more conservative balance. This means less money going into stocks, and more going into bonds, ETFs, and other lower-risk investments. As you can imagine, as you get closer to retirement, you need to be more careful about risk. Because if something goes wrong, you don’t have time to recoup that money.
While this is the basis of an asset allocation, planning can be complex. For help developing a strategy, strongly consider: working with a financial advisor.
Make and stick to a budget
One of the easiest ways to make sure you have $1 million — or whatever your goal is — when you’re ready for retirement doesn’t require financial know-how or investment vehicles. All it takes is to understand the simplest financial concepts: money you spend cannot be saved.
The first step you can take to kick-start your retirement savings is to make sure you take advantage of your 401(k) or another workplace retirement plan, if you have access to one. This means that money goes into your retirement savings before it even appears in your bank account, so you never have a chance to spend it. However, a successful retirement savings plan will likely involve more than just a 401(k). You also need to put money aside from your account every month.
The best way to do this is to make a budget that also includes savings for the future. Unless there is an emergency, such as a medical problem or major car repair, this money goes into a savings or investment account. By making smart decisions with your spending, you can now increase your savings. In other words, avoid buying the most expensive cars and try to choose sensible vacation spots that are not too expensive.
Entering your retirement years with $1 million in savings is a daunting task, but it’s certainly not impossible. You need to make sure you save early, with smart asset allocation, and don’t spend so much that you can’t put money aside for the future. Following these tips won’t guarantee you anything, but it will put you on the path to a safe retirement.
Retirement Planning Tips
One way to get yourself on track by saving $1 million is by help from a financial advisor. Fortunately, finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool puts you in touch with up to three financial advisors in your area within five minutes. If you’re ready to be matched with local advisors, start now.
An annuity is another investment to consider as a way to create retirement income. There are different types of annuities such as variable, fixed and indexed. In turn, be sure to do your research and find out what’s best for you.
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