For many Americans, workplace-sponsored retirement plans are a major, if not the primary, way they go about saving for their futures. In fact, according to the Voya Retire Ready Index, 8 in 10 working Americans report they are currently contributing to employer-offered plans.
While saving for the future is a priority, many investors will set up their accounts, opt for automatic contributions and then often forget about their retirement plans. Though the “automation” method of saving can certainly build up over time, being more actively involved in your retirement savings strategy enables you to take advantage of additional opportunities to make your money work for you while maximizing your gains over the long run.
The first step toward getting your retirement savings on track is to start thinking about what you will need to have a successful retirement. What do you want your retirement to look like? It’s not easy to map out a savings strategy if you don’t know where you are going. Think about everything from potential travel plans to the basics such as housing and health care.
Once you have a picture of your ideal financial future, you can start to determine how much you will need to save to meet your goals. The most effective way to think about this is through the lens of monthly retirement income. Rather than trying to determine one lump sum for all of your retirement years, consider how much money could be needed each month to meet your goals. You can work with a financial advisor to determine your retirement income number or use a free, online tool like Voya’s myOrangeMoney online retirement experience, which helps lay out the big picture of how different strategies can help you meet your retirement income goals.
With an account set up and a plan in sight, you can start to put together and implement your strategy. First, remember to pay yourself early and often. Most retirement accounts allow you to set up some sort of automatic contribution, such as a set dollar amount or percentages deposited monthly into your retirement savings. The key to doing this is to make sure you continually build on this number. A good rule of thumb: each time you receive a raise at work or some sort of additional income, you should also consider increasing your retirement savings contribution, if you are able.
Next, look at the vehicles that are making up your retirement savings portfolio. Many employer-sponsored plans will place your savings in a default group of funds — typically, this is a mix of a low-risk fixed-income and equity investments. For workers who are only a few years away from retirement, staying the course with low-risk, “strong and steady” investments may be the best strategy. However, if retirement is further away, now is the time to determine your risk tolerance and see how you can best take advantage of the market.
It is important to remember that market ups and downs may cause investments to become out of balance over time, so you should periodically review your accounts to ensure your portfolio stays aligned with your goals and preferred risk level. When rebalancing or making any significant changes, it is always helpful to speak with a financial advisor to determine if changes in the market warrant modifying your savings strategy. Mild market fluctuations often are not reason enough to completely change course. It is easy to feel panic when you see red on your account, but be sure to do some research or consult with a financial professional before jumping ship on any one fund or sector.
Once you have a strategy in place and feel confident that you are properly allocated across funds, let your money get to work. It is also a good to continuously monitor your investments quarterly and during any major market events to see if additional adjustments are needed. Setting up a retirement account through your employer is a great first step toward building a strong foundation for your savings, and by spending a little extra time customizing your strategy, you could be able to see even greater benefits in the years to come.
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Making Your Savings Work For You originally appeared on usnews.com