Saving for retirement is one of the most important financial decisions we will make. Â However, this can also be one of the hardest things to do as well. Â In order to help boost your retirement savings, here are some tips to help you put away more for your retirement:
1) Use Roth IRA’s for emergency funds – This may sound a little funny, but in fact it works like a charm. Â Instead of parking emergency money in a money market or savings account, put it into a Roth IRA. Â A Roth IRA is just as accessible as a money market because you can withdraw your Roth IRA contributions at any time without penalty. Â But, since it is inside a retireement account, our brains are less likely to pull that money out because it is set aside for retirement. Â It takes away the temptation to raid your funds.
2) Picture your aged self- This one, too, sounds a little weird but it works. Â Picture yourself when you are older and you may start to care more about saving for retirement. Â Take a picture of yourself and age it using a multiple of online resources to do so, and this will allow you to see yourself when you are older. Â This way, you start to visualize what your life will be like and then you start to take more ownership in your financial future.
3) Question all of your spending- The best question to ask yourself is “How do we spend less?” Â The easiest things that we overlook in our budget are the things that are set up on automatic payment. Â Some payments are fixed costs like a mortgage or a car. Â But things like a department store credit card or daily trips to the coffee shop can be adjusted. Â There is no problem with treating yourself, but you can start thinking of purchases as needs vs. wants. Â This will help you be a better steward and more saving instead of spending.
4) Use auto-rebalance- This is the most important of the tricks that is under-utilized by the population. Â According to a study of over 1 million Americans over a two year period, 75%-80% of them said they made zero trades in their retirement accounts. Â While excessive trading is bad, no trading is also a formula for disaster. Â This can cause your current portfolio to be overweighted in certain asset categories causing higher risk levels. Â A prime example was the tech boom in the late 1990s and early 2000s. Â In order to avoid unnecessary risk like this, rebalance your holdings quarterly so that your target mix of assets do not get out of sync.
5) Factor in Social Security- Â This is a new way of looking at Social Security, not as an income stream, but a present value investment. Â That means that your Social Security acts as a large bond that you currently hold in your portfolio that will pay out “interest” or payments later in life. Â Because of this, you can factor that large “bond” into your retirement mix of assets and can still use stocks and equities as a part of your portfolio. Â This will allow for better long-term growth because stocks outperform bonds in the long-term. Â However, when we get clsoer to retirement, these numbers need to be adjusted and less stock should be owned.
6) Dollar-cost Averaging– This has long been known as a way to reduce risk. Â Currently, that point is being argued in the financial world. Â However, what cnanot be disputed is that dollar-cost averaging reduces your investor regret. Â This allows a person that will be investing $6,000 in the year 2012 to split that investment up into 12 payments of $500. Â This allows for the investor not to become scared about the market and not invest the $6,000 at all because of market conditions. Â Because it happens each month, it is more out-of-sight out-of-mind for the investor.
In conclusion, it’s all a bout tricking our mind to do what is best for us. Â Sometimes our instincts and emotions are wrong, and it can be tricks like these that help us stay on track.