Many Americans have failed to set retirement savings goals, which puts them at risk of ending up with too little money in their later years. And among those who do have savings objectives set, far too many people won't end up sticking to their plan.
The good news is, there's a simple way to set goals that you'll actually end up fulfilling. Just follow these four key steps in order to do it.
1. Be specific
It's almost impossible to accomplish a goal when you aren't clear on what your objective is. As a result, one of the most crucial steps to setting effective retirement savings goals is to know exactly how much you need invested by the time you reach retirement age.
When you set your savings goals, you should specify:
- When you must achieve your goal: This should be the target age when you want to retire. Be sure you aren't overly optimistic. If you assume you'll be able to keep working until 70, chances are good that won't end up happening and your nest egg will be too small if you retire earlier.
- How much you must save: There are different ways to calculate this. Multiplying your final salary by 10 is one simple approach. So if you expect to be making $80,000 upon retirement, that would mean your goal would be an $800,000 nest egg.
2. Break big goals down into small ones
Knowing what your portfolio balance must be 30 years from now is important, but it doesn't do you much good for creating a road map to amass so much money. To accomplish your investing goals, you must know how much to save now.
Investor.gov's savings goal calculator makes it easy to figure that out. Input your target retirement date, amount you want to end up with, starting balance, and projected future returns to see how much to contribute to retirement accounts on a monthly basis.
If you aren't sure how to estimate future returns, assuming 8% is reasonable, since the S&P 500 has produced average annual returns of 10% consistently over the long term. The S&P 500 is widely viewed as a benchmark for the market as a whole. You probably won't -- and shouldn't -- have all your money in stocks, so an 8% projected average annual return is realistic. Of course, if you plan to invest in individual stocks and are good at picking companies to invest in, you may be able to do even better.
If your goal is to save $800,000 over 30 years and you assume this 8% average annual return, the calculator would reveal that you need savings of around $589 per month to be on target if you were starting with a $0 balance today.
3. Automate your investments
Making the process of investing automatic maximizes the chances of achieving your goals, because you'll stay on target if you simply stick with the status quo.
Once you've calculated the requisite monthly amount to save, arrange to have this amount deposited into your 401(k) or IRA. Doing this once and leaving everything on autopilot means no further effort is required from you to accomplish your objectives.
4. Track your progress
Finally, it's helpful to monitor whether your efforts are paying off.
As you see your account balance grow and realize you're on the path to achieve your dreams, you'll hopefully stay motivated to stick with the plan. And if you find that you're falling short, you can make any changes needed to ensure security as a senior.
Start taking these four simple steps ASAP, as the sooner that you get to work on achieving your savings goals, the easier it is to accomplish them on schedule.
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