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How to Get Your Retirement Savings Above the National Average

By on March 1, 2014 in Money

How to Get Your Retirement Savings Above the National AverageA recent study provided some shocking results about the average retirement savings based on age group. Across all age groups, none were saving enough money for retirement. Not a single one.

On a whole, workers over age 55 had less than $50,000 saved for retirement. And workers under 35 average less than $6,000 in savings for retirement.

I’m not exactly sure how anyone falling anywhere close to the average plans to retire. Some estimates show that having $1,000,000 in savings for retirement might not even be enough, not to mention 5% of that amount.

The numbers are dismal and frankly will lead to disastrous retirements for non-savers. (That or expect Social Security tax rates to go sky high to compensate!)

Tactics for Getting Retirement Savings Above National Averages

Don’t put yourself in this boat. Fight the good fight and get your retirement savings above average. Here are some tips on how to do that.

Save Automatically

The easiest way to hit your retirement goals is to save for them automatically. Take the thinking and emotions out of your investing. If you rely on yourself to have the resolve to send in money every month, you won’t. You’ll find other ways to spend the money, come up with excuses on why now isn’t a good time to sock money away for decades, or simply forget.

Automatic contribution is easy to setup with your employer’s retirement plan and also with IRAs outside of work. Do it today.

Increase Contributions Annually – and Automatically

After you’ve set up your automatic contributions each month, set up a plan to increase those contributions annually. In this rough economy not everyone gets an annual raise, but when you do it is easy to let it succumb to lifestyle inflation. (Lifestyle inflation is where your pay goes up 3% and your expenses go up 3% as well; there is no net gain from getting a raise.)

Fight the habit of spending your raise by automatically increasing your contributions each year. Some employer retirement plans offer this option where you can slowly raise the percentage of your pay each year. Even if yours doesn’t – or you are using IRAs instead – mark it on your calendar to increase it every year.

Rebalance Annually

There’s one more annual task you need: rebalancing your asset allocation each year.

Rebalancing is where you reset your portfolio to the standards you started with. If you intended to have a portfolio of 60% stocks and 40% bonds, you might find yourself with 65% stocks and 35% bonds at the end of the year. (Either because your stock holdings grew a lot or because your bond holdings fell.)

When you rebalance you take that extra 5% from the stock holdings, sell them, and buy more of the bond holdings. Doing this each year forces you to buy high and sell low – which is opposite of how our emotions work. We see stocks going up and want to hold on, often to our detriment when they fall a massive amount the next year.

Rebalance annually, and when you do, consider going ahead and bumping up those contributions. Kill two investing birds with one annual stone.

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