The hardest part about New Year’s resolutions is keeping them.
Only 14 percent of people age 50 and older actually achieve their resolutions, according to a study by the University of Scranton’s Journal of Clinical Psychology.
The most popular goal: “Lose weight.”
Although it’s important to choose healthy habits every year, it’s equally important to consider the health of your financial future. If it has been more than a year since you’ve reviewed your savings and investment strategy, then now’s the perfect time to give your account a checkup.
Here are three achievable ideas to help keep your retirement account in top shape this year.
1. Re-examine Your Investment Mix
As a retirement plan investor, you’ve witnessed quite a bit of turbulence in the equity markets the last few years; and when the stock market starts to fall, it’s tempting to shift the bulk of your plan investments into “safe” investments, such as cash equivalents.
Although considered low risk, cash equivalent investments typically deliver low annual returns that could make it difficult for your account to say ahead of inflation, especially if you have several more years until your retirement.
Don’t Sacrifice Growth For Safety
Take a fresh look at your investment mix. If it’s heavily allocated in low-risk investments and retirement is still several years away, consider rebalancing to include enough stock investments to give your account more potential to grow during the good years. Although stock investments entail greater risk than cash investments, they have historically produced greater returns, which is essential for growing your nest egg.
Take A Long-Term Approach
Remember, short-term losses are only on paper until you sell the losing investments or trade them. People who stay invested for a long period of time are more likely to weather, and even regain, losses from individual years.
For example, even though stocks (represented by the S&P 500 Index below) performed poorly twice in the last five years, their average returns over a 20-year period still outpaced cash investments. For comparison, U.S. Treasury Bills returned just 0.08 percent in 2012, and averaged a 3.01 percent return over the last 20 years.
|S&P 500 Index Average Annual Returns|
|Year Ending||1 Year||10 Years||20 Years|
An investment cannot be made directly in an index. This example is for illustrative purposes only and is not indicative of the performance of any specific investment. Past performance is no guarantee of future results. Investments are subject to market risk and fluctuate in value.
2. Maximize Your Pre-Tax Savings
Looking for ways to lower your tax burden for 2013? One way to meet this goal is by maximizing contributions to your tax-deferred retirement plan.
When you contribute to your plan before taxes are withdrawn from your paycheck, you reduce your taxable income.1 For example, if your gross income is $50,000 and you contribute $15,000 to your tax-deferred plan, you’ll owe income taxes on only $35,000.
In 2013, the IRS will allow you to contribute up to $17,500 to a qualified retirement plan, or up to $23,000 if you are age 50 or older. So make sure to contribute as close to the maximum as you can to take advantage of those tax savings.
The Out-Of-Pocket Cost Is Less Than You Might Think
Tax-deferred plans also makes saving for retirement affordable. Because taxes are deducted from your paycheck after your contributions, the difference in your take-home pay is less than the full amount going into your retirement account.
Use this calculator to estimate how pre-tax contributions might affect your paycheck.
1 Federal, and if applicable, state income taxes are due upon withdrawal from tax-deferred retirement accounts.
3. Contribute At Least 1 Percent More
If you cannot afford to contribute the maximum amount to your retirement plan this year, make a resolution to contribute at least 1 percent more. Even a small increase can make a big difference over time.
Not Sure If You Can Afford An Extra 1 Percent?
For a person earning $35,000 per year, saving an extra 1 percent amounts to less than $30 per month. You can save that amount simply by eating out less often, which may be one of your resolutions anyway.
Expecting A Pay Increase?
Consider deferring the entire amount of your raise to your retirement account. You won’t notice a reduction to your take-home pay, yet the extra amount can give your account greater potential to reach your retirement goal.
As the chart shows, even a modest increase can potentially grow to a sizable sum for retirement.
|How Much Is A Small Increase Worth Over Time?|
|Contribution Increase||After 10 Years||After 20 Years||After 30 Years||After 40 Years|
|1% ($20.83 monthly)||$3,836.17||$12,351.09||$31,251.15||$73,202.48|
|5% ($104.17 monthly)||$19,184.54||$61,767.31||$156,285.75||$366,082.67|
This example is hypothetical and for illustrative purposes only and is not indicative of the performance of any specific investment. Investments are subject to market risk and fluctuate in value. All contribution amounts are based on a $25,000 annual salary and assume an 8 percent rate of return compounded monthly.
Start By Accessing Your Account
It takes only a few minutes to achieve your retirement fitness goals.
Simply log in to your account with The Standard and access Personal Savings Center. From there, you can review your investment mix and increase your contribution rate with just a few mouse clicks.