When it comes to retirement planning, it is never too early to start saving. Unfortunately, it is never that easy either. It is normal to procrastinate a bit when you are focused on bills that are due today and the things you want right now. And let’s face it…it is hard for all of us to wrap our minds around far off events.
But when it comes to investing, time is a big advantage.
The simple fact is, the earlier you start gives your retirement savings that much more time and potential to grow. And by investing early and staying invested, you will be able to take advantage of compound earnings — the “secret sauce” in an investment plan’s long-term success.
You get even more benefit from the power of compounding in a tax-deferred 401(k) account of course. Your retirement plan has the potential to grow faster because the money you would have paid in taxes on earnings each year remains in the account and can earn additional money.
But we know that putting aside a portion of your salary can be a challenge. Many people want to contribute the maximum permitted by their plans but find it takes too big of a bite out of their paychecks.
Here are a couple of ideas that might help you bump up the numbers:
- Increase your contribution over time
Try increasing your payroll deduction by 1% every quarter until you reach the maximum contribution amount. By increasing your contributions gradually, you may notice only a slight difference in your paycheck. But with compounding, each additional 1% could be worth far more in the long run.
- Invest a portion of your raise over time
Each time you get a raise, give your retirement plan a raise as well. Take a percentage of your salary increase and add it to your payroll deduction program. You will still take home a higher salary while your retirement nest egg benefits from increased contributions.
Bottom line: The earlier you start and the more you invest, the more contributions you will be setting aside per pay period toward retirement. You will be surprised how little amounts can become significant over a year and even more surprised at how much accumulates over 10+ years.
So, are you on track toward your retirement goals or do your strategies need adjusting? We encourage you check with your advisor to make sure your retirement strategy can get you where you want to go when you want to get there. Check out Shelton Capital’s library of 401(k) Educational Videos
to help you make good choices and stay on a good retirement track.