Sooner or later, the conversation turns this way: How is your retirement savings plan going, and who’s doing it the right way?
The conversation might be among your peers or with a spouse or partner, but the problems are same. We need to save more, we need to invest better, and we need answers that make sense.
There’s a huge industry full of people out there willing to give it a try on your behalf. Certainly, they won’t mind collecting commissions as they attempt to do well with your money.
If they fail? No harm, no foul, at least from their perspective. The commissions flow just the same. Nice work if you can get it, I suppose.
The important thing for you to understand is that you will make your retirement savings goals because you saved, and for no other reason. Investing is powerful stuff, but doubling your money on a low balance will result in only incremental increases in your wealth.
No, it takes money to make money. You should target to double your money every 10 years. If you can do that, the compounding effect alone will result in quite a large retirement savings pot.
But, this happens only if you actually put money away, in a disciplined and serious manner, for years. No taking a year off, no robbing the 401k for vacation money.
How can get more serious about this? Here are some ways to think about increasing your own retirement savings:
1. Automate. Get the decision process out of the way. If you have access to a 401k, sign up and maximize your contribution straight from your paychecks. Your taxes will be lower and, once the balance in your retirement account starts to rise, you will be relieved and happy.
2. Calibrate. Don’t “set it and forget it” for years on end. Review where you are once a year and increase your contributions regularly. Open a traditional IRA if you qualify and a Roth IRA as well. If you get a windfall, bank it. If you get a raise, put a significant portion of it, if not all, into your plan, not your check.
3. Celebrate. You should begin to see serious progress on your retirement plan balance within just a few years, if you are prudently invested in a risk-adjusted portfolio. Reward your discipline by taking that vacation if you like, just don’t draw down your retirement fund to finance it!
Investing can be easy. It’s saving that’s hard. You are putting off consumption today to make sure you can finance tomorrow. But saving is also a sign of good character and personal responsibility, a reward in itself. You can do it.