Every investor would like to squeeze more gains out of the market without taking on more risk. But that’s just not how things work. This dance is ultimately about managing trade-offs, like sacrificing upside potential in exchange for greater certainty. If you want to grow a bigger retirement nest egg without changing your stock-picking approach, your only option is to tuck more away now.
With that as the backdrop, here’s a look at four different ways you can start putting more of your money to work in the market within a matter of days.
1. Max out your employer’s matching contribution
While not everyone works for a company that offers this perk, about half of the major employers in the U.S. will match — up to a limit — the amount of your own money you’re contributing to your company-sponsored retirement plan. The matched figure can vary from one organization to the next. But one of the more common matching arrangements calls for an employer contribution of 50% of every one of your dollars put into the plan, up to 6% of your salary.
At the very least you should be chipping in the amount the organization is willing to match, even if you’re not immediately vested. That is to say, even if you have to wait a few years before you can actually lay claim to the company’s contributed portion of your retirement fund, you should still be making your own contributions.
2. Automate your savings
Just because a worker is earning more than enough money to build a nice nest egg doesn’t mean they’re actually tucking those funds away. It’s easy to spend it as soon as you see it in your bank account, without ever really thinking about saving it for the future.
Fortunately, there’s a simple solution. Most banks and brokers will now facilitate the automated, hands-free movement of a fixed amount of money from one account to another. The only discipline you need is the discipline to spend a few minutes setting up such an arrangement. Even starting with a modest automated contribution of $100 per month from a checking or saving account to an IRA or brokerage account is a good start.
Best of all, you don’t really miss it when you never really see that extra $100 sitting in your bank account. Your brain subconsciously adapts to the slightly smaller budget you’re now managing every month.
3. Cut out the silly spending
Of course, if you can find more than an extra $100 a month to save for retirement, you certainly should. And this isn’t as tough as it may seem, if you’re serious about saving. As consumers, we have a tendency to spend more than we realize.
For instance, number-crunching from Visa suggests the average American spends nearly $3,000 on lunches per year, with the cost of buying a lunch about twice as much as making one for yourself at home. About two-thirds of the nation’s typical $60-per-month gym memberships go completely unused, according to a survey performed by Ladder and OnePoll. Some coffee drinkers are even shelling out as much as $2,000 per year to get their caffeine fix.
These are all costs that can be curbed, even if not entirely kicked to the curb. It’s not a stretch to say the average U.S. resident could cull a couple thousand dollars’ worth of annual spending if they really wanted to and instead put that money into a retirement fund.
4. Consider the timing of your taxes
Finally, while everyone loves the idea of lowering their tax bill, things are not always as they seem on this front.
Broadly speaking, you want to pay taxes when your tax rate is the lowest it’s apt to be, and you’ll want to reduce your tax liability when your tax rates are their highest. Most people pay the most taxes they ever will while working in their highest-income years. That’s usually between the ages of 35 and 55.
Conversely, typically lower retirement incomes tend to incur modest tax bills. Therefore, sometimes it makes sense to postpone paying taxes now and pay them later, as would be the case when you have a traditional IRA. For other people, it might ultimately be more financially fruitful to go ahead and deal with the tax bill now and enjoy tax-free distributions from a Roth IRA later — assuming you’re eligible to contribute to a Roth.
Obviously this requires some conjecture on your part. Some people continue to see wage increases every year up until they retire, while others may voluntarily begin working less — if they’ve earned plenty early in their careers — before the usual peak-earnings age around 50. It also requires guesswork as to prospective changes to tax rates. You should discuss the matter with a qualified tax professional who’s familiar with your particular situation.
Regardless, it’s possible that contributing to a Roth or reducing your taxable income by making contributions to a traditional IRA right now ultimately means you’re leaving money on the table.
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