Five ways to convince yourself to increase your retirement savings.
The last few years have been rough to say the least for anyone saving for retirement with investments in the stock market. The Recession and continued gloomy outlooks in the media have investors second-guessing their plans to save for the future. Maybe it’s better to spend more money now and avoid the Wall Street industry, which seems to be designed to benefit institutional investors and their own shareholders.
If you ever intend on leaving your day-to-day work behind in favor of spending years without trading your time and effort for income, retirement saving should still be a priority. Put the negativity aside and use this as an opportunity to move forward towards financial independence.
1. Buying stocks when most people are avoiding them could be good timing. Yes, it’s dangerous to think you can time the market. Don’t aim for investing at the market’s bottom, hoping to take advantage of the next bubble, but take a look at stocks when your friends and co-workers are too scared to add to their 401(k) plans. When others are avoiding risk, it’s time to increase your exposure.
The stock market only appears safer once people have seen the stock market indices increase for some time. By then it’s too late to take advantage of the biggest returns — and if you want to approach the fabled 8 to 10 percent long-term returns of the stock market, you need to be invested when those big increase following declines come around.
2. Any investment is an investment in time. You may be able to make more money, but you can’t make more time. Time is a significant financial advantage. The math behind the concept of compounding returns plays out in such a way that a small investment early in life, invested properly, will grow to a larger value than a larger investment later in life.
3. Your actions now will prevent you from being a burden on others in the future. In past centuries, families were often larger. Elderly relatives lived with their children and perhaps their grandchildren, who supported their needs. Today, Social Security and Medicare exist to help the elderly manage their increasing expenses, but the future of government programs that benefit society are uncertain. If you don’t want to be a burden on your children, the best way to prevent needing support later in life is to save as much as possible, as soon as possible, for as long as possible.
4. It’s not possible to save too much for retirement. However, there is need for a balance in how much is saved and how much is spent. Embedded in the financial media, there is a strong focus on retirement investing. The focus is so strong that many people can easily forget that life is something to live, not to wait for. You can live your life while saving for retirement, however. So once again, there’s a balance you need to find, but retirement saving needs to be made a priority in order to have a comfortable life when and if you decide to stop working. The question of whether you are saving too much is a luxury you can consider once you’ve saved enough.
5. Write down the expenses you’ll have during retirement. If you’re able to retire young, you’ll want to have money available to find activities to replace your job and enjoy the time you have when you’re still healthy. Only delay what you need to delay, as you age, your health may deteriorate, as well. Think about the expenses you’ll have when and if you need long-term health care services.
Living — and dying, not to be morbid — is expensive. When you think about those expenses and write them down, the numbers become real. Once you’ve written them down, add 3% for every year between now and your planned retirement date to account for inflation. These are going to be big numbers, and perhaps they will be scary enough to motivate you into saving for retirement immediately.
Your biggest ally in building wealth is time, and time is the one thing you can’t control. You can’t buy more time. You can’t trade time with your friends. The best chance you’ve had at increasing wealth is to start planning for the future yesterday, but since that’s no longer an option, you need to start today. If you’ve already begin saving, the best time to increase your savings plan, giving you the boost you may need to become financially independent, is right now
JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.