By age 40, you should have between two and three times your annual salary socked away for retirement, financial experts say. By age 50, that number climbs to six times your salary.
If your 401(k) balance falls well short of that goal, you’re not alone. According to Northwestern Mutual’s 2018 Planning & Progress Study, 78 percent of Americans say they’re concerned about not having enough money for retirement. The good news is there’s still time to play catch up, says financial adviser Meredith Briggs, co-owner of Taconic Advisers and a member of the Alliance of Comprehensive Planners.
“Once you’re in your 60s, it’s too late,” she says. “But your 40s are often your peak earning years, and you still have at least 20 years for your money to grow.”
Here, Briggs shares a few tips to supersize your nest egg — starting now.
Don’t “set it and forget it.” If you haven’t reevaluated your 401(k) contributions since you started your job, that’s a no-no. Briggs recommends increasing your contributions on a regular basis, ideally every year, with the goal of setting aside at least 10 percent of each paycheck.
“The perfect time to do this is when you’re filing your taxes,” she says. “Typically 401(k) contributions will reduce your taxable income, so you can not only better position yourself for retirement, you can better position yourself for a refund next year.”
If you can’t afford small annual increases, then commit to making a sizable increase each time you get a raise. (That way you won’t “feel” the extra money being taken out.)
Keep calm and carry on … If the stock market goes south, it’s hard to watch the value of your 401(k) investments sink lower and lower. You might even be tempted to reduce your contributions and park your money elsewhere. Don’t, says Briggs.
“Think about it like this: In a down market, everything’s on sale,” she says. “Just like the best time to buy real estate is when property values go down, you want to take advantage of those same opportunities in the stock market.” Remember, you’re investing for the long term. Over the following months or years, you’ll be able to sell those stocks and bonds at a far higher price than you bought them at.
The same rule goes for switching your investments around every time the market takes a dive. “Emotionally, you want to buy stocks that are doing well and sell stocks that are losing value. But a good investment strategy is the opposite: Buy low and sell high,” she says. “It’s easy to get caught up in a panic and reduce your total return.”
… At least until life gets complicated. “Target date” funds are popular for a reason — they’re a simple way to diversify your retirement savings. Choose a fund based on the year you want to retire (say, 2040), and the portfolio automatically adjusts and rebalances over time as you inch closer to that date.
“While you’re accumulating and growing your money,” Briggs says, “these can be a great solution for most people.”
The tricky part is in that second-to-last word: most. These funds are built for the average American at your same age. They’re not meant to adjust for individual changes in financial circumstances: a divorce, a remarriage, the death of a spouse, an inheritance, a layoff, a serious medical diagnosis. Not everyone has the time or resources to hire a dedicated financial planner, but after a major life change, it’s a good idea to give your off-the-rack investment portfolio some personal tailoring.
Try to remember your 20s. And your 30s. Remember that gig you had for a couple of years back in the early 2000s — what ever happened to that retirement account? If you’ve hopped between jobs several times over the past 20 years, it’s likely you have old 401(k)s floating around in different places. But out of sight shouldn’t mean out of mind. According to the National Association of Unclaimed Property Administrators, Americans lost track of more than $7.7 billion in retirement savings in 2015.
“Don’t let these accounts languish or go missing,” says Briggs. “It’s hard to know how much you need to save if you really don’t know how much you have.” Consolidate old accounts into your current 401k or roll them over into an IRA — that way you always have control over your money.
Take a hard look at fees. A recent TD Ameritrade survey found that just 27 percent of Americans pay attention to the fees they’re paying for their 401(k)s. “Unfortunately, you often don’t have a choice in who your employer uses for your 401k plan. If you’re going to participate and get your company match, that’s what you get,” says Briggs.
Still, if you have a choice of 401(k) plans or if you have your money in an individual account like an IRA, then shopping around for lower fees can make a tremendous difference in how much money you’re left with at retirement.
“One or two percent in fees may not sound like a lot, but another plan might charge only a fraction of that,” she says. “And over the years, the multiples that you would reap in savings could be tens or even hundreds of thousands of dollars.”
Don’t put your nest egg in your company’s basket. “Quite frequently I see people whose retirement savings are very, very concentrated in company stock,” says Briggs. After all, your company may offer stock for sale at a discount, or provide stock as a bonus. But even if it’s the best company ever, you’re exposing yourself to unnecessary risk by having too much money invested in your employer.
“If you’re buying company stock, and you’re also getting your paycheck and your health insurance and other benefits from the same company, then you’re in a very precarious position if that company has a bad cycle,” says Briggs. “You could possibly lose your job and at the same time see a dramatic drop in the stock price.”
It’s OK to take advantage of company stock offers, but Briggs recommends that you don’t invest more than five percent of your portfolio in any single stock — especially if the company is also your employer.
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