If you’re not as prepared for retirement as you’d like to be, you’re not alone. According to a March 2016 report from the Economic Policy Institute, nearly half of American families having nothing saved for their later years. Among families that do, the average savings balance is $95,776.
The beginning of the new year is a great time to review your spending and savings habits and map out a plan for hitting your retirement goals. If you haven’t been setting aside as much for retirement as you’d like or you have yet to start, here’s how to get your plan on track.
1. Start with your employer-sponsored plan
If you’ve got a retirement plan available through your job, you’re off to a good start already. Stashing away some of your salary into a 401(k) is a relatively easy way to build up your nest egg.
So how much do you put in? At a minimum, you should aim to save at least enough to get the matching contribution if your employer offers one. Here’s an example of how valuable the match can end up being.
Let’s say you make $50,000 a year and you’re 35 years old. You’re saving four percent of your salary into your 401(k) each year. To qualify for a matching contribution, you’d need to bump that up to six percent.
If you keep your savings rate the same and earn a seven percent annual return until age 65, you’d have just over $196,000 for retirement. That’s a good chunk of cash but it’s nowhere close to the $1 million or more that experts usually recommend.
If you increased your savings rate to six percent to qualify for a 100 percent matching contribution, you’d grow your savings up to $588,000 instead. Raise that to 15 percent and you’d easily surpass the $1 million mark.
Check how much you’re currently contributing to your plan. If you’re not chipping in enough to get the match, consider increasing your salary deferrals so you’re not losing out on free money. If you are saving enough to qualify for the match, ask yourself whether you can afford to raise your savings rate by just one or two percent to start. It may not seem like much but it could make a huge difference in your retirement outlook over the long term.