Are you worried you won't have enough money for retirement? Investment management can help determine how much you need and the best approach to save enough money. Keep reading to discover how to maximize your nest egg.

How Much To Save

The first step to maximizing your nest egg includes knowing how much you should save. Decide what you want your retirement to look like and make a list of things you want to do and how you want to live. 

Then, do your best to estimate what things will cost once you retire, considering an average inflation rate of 3.22%. Once you know your projected expenses, determine any sources of income you'll have, including investments, pension funds, and social security. The difference between your expenses and your income is how much you should save.

Generally speaking, some experts have suggested that you may need as much as $2 million to live a 'comfortable retirement,' those these numbers can vary wildly depending on your spending habits. Financial professionals may also recommend you spend around 70-85% of your current income per year once you are retired.

Tips for Saving Enough Money

Whether your goal is $2 million or more, saving enough money can feel overwhelming. However, with the following tips, you can maximize your savings potential.

Set an Age Goal

Determine what age you think you'll be able to retire. While working longer allows you more time to save, it also reduces the amount of time you have to enjoy retirement. Conversely, if you retire too early, you'll depend on your savings for a while before you can draw from social security, which means you'll need to save even more money.

The average age of retirement is between the ages of 65 and 66 which is around the age at which the Social Security Administration assumes retirement. This gives you significant time to save, avoids drawing from your savings too quickly, and still gives the average person over a decade to enjoy retirement.

Pay Off Your Debts

While not always possible, prioritize paying off your debts before you retire. If you continue to pay off your debts after retirement, focus on the high-interest ones first, which often include credit cards, personal loans, and car payments. 

Also, prioritize student loan payments. If you still have student loan debt in retirement, the government can garnish up to 15% of your social security payments if you fall behind.

Maximize Contributions

Good investment management guidelines suggest you maximize your contributions to your retirement accounts. If you're traditionally employed, your workplace probably offers some form of tax-advantaged retirement account. IRAs and 401(k)s remain two of the best methods for saving for retirement. 

While contributing the maximum allowable amount gives you less money to live off short term, it sets you up for success after retirement. The maximum you can contribute changes each year based on inflation rates and other economic factors, but in 2023, the IRS allowed a maximum contribution of $22,500, and for those savers who are 50 or older may contribute up to $30,000 depending on the plan. This is called the 'catch-up provision.'

But contributing to these accounts doesn't just have long-term benefits. When you contribute to your 401k or IRA, you may be eligible to deduct the amount from your total taxable income, meaning you'll lower your taxable income for that year.

Use Employer Match

As part of their benefits, many employers match your 401(k) contributions up to a certain percentage of your total paycheck. The average employee match equals just under 5%. This means if you make $2,000 every paycheck and opt to automatically deposit 5% of it, you'll contribute a total of $200 toward your retirement: $100 from you and $100 from your employer ($2,000 x 0.05 x 2).

Keep in mind your employer won't match the maximum if you don't contribute that much. For example, if your employer offers a 5% match, but you only contribute 3% of your total paycheck, you'll receive a 3% match instead of the 5% match. 

While that extra 2% gives you less paycheck to live off, you have to think long-term and realize how much money you'll miss out on for retirement. If you make $2,000 every paycheck, that extra 2% equals $80 a month. Throughout a 40-year career, that's $38,400 from your employer you've missed out on ($80 x 12 months x 40 years = $38,000) plus the potential growth! Remember, employer matches are a guaranteed 100% return on your money.. 

Consider how good investing could multiply that money.

Diversify the Investments

Whether you invest in your retirement accounts or other investments, diversity is one of the first rules of good asset management. This means instead of putting all your money into one asset class, consider investing in a well diversified portfolio which may include different countries and sectors of the investable market.

Financial experts consider a diversified portfolio a more impactful investment strategy as the goal would be to lower your overall risk for the level of return. Certain asset classes do not provide an equally higher level of return for the risk.

Regularly Review and Adjust

One key way to maximize your nest egg requires regularly reviewing your investments, assessing their performance, and adjusting as needed. If one area of your portfolio underperforms,determine whether or not you need to redeploy those assets into another area of the portfolio.

Don't consider investments something you fund and then forget about. While you'll still likely grow your nest egg, you won't maximize it without purposeful attention. You can also vary your risk as you near retirement, and many people prefer to invest aggressively when they're young and take a less aggressive approach as they near retirement.

Minimize Fees

Many investments have underlying fees- called expense ratios. Depending on whether or not the investment is actively managed by the management company, these fees can often near or exceed 1% depending on the fund. Large underlying expense ratios can erode returns over a long period of time so be sure you are invested in a manner that suits your needs and if you are paying large expense ratios, the fund is producing excess returns to demand that fee.

Keep Learning

While your financial manager can handle most of your investments, stay informed by reading a financial journal or other reputable sources. This can help you understand your investment portfolio and help drive the conversation with your advisor about the risk you are willing to take vis a vis your goals.

Contact Your Wealth Management Experts for Help

At Momentum Private Wealth Management, we take our duty of investment management seriously. We take time to learn your goals and help you build wealth while navigating a volatile market.

To learn more about our investment management services or to speak with a wealth management specialist, call 512-416-8085 today.