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5 Habits of Successful Retirement Savers

successful retirement savers reviewing their account balances online

Tips to Maximize Your Savings

A recent report indicated that a mere 46% of American households have savings in a retirement account. Of those who have saved, 6% reported having more than $100,000 in retirement savings, and only 9% have more than $500,000,1 indicating a significant retirement savings gap between the amount they say they need for retirement and the actual amount saved for many Americans.

The good news is that successful retirement savers can teach us a lot about how to set aside money for the future. The following habits of successful savers can help you bridge the retirement savings gap.

#1 – They start saving early in life.

Successful retirement savers understand the importance of saving early and consistently throughout life. This practice allows them to maximize the benefits of compound interest over time, because as investment gains accumulate, they increase an account’s balance and begin earning their own interest. Over the years, this cycle can lead to significant earnings.

Consider the following chart, which illustrates the impact of compound interest. Notice that both Emma and Brent save $200 per month in their retirement savings accounts. However, Emma begins saving at age 20 and completely stops adding to her account at age 30. Brent, on the other hand, waits until age 30 to begin saving but continues adding $200 each month to his account until he reaches age 67.

Assuming a 10% annual return, look at the difference between Emma’s and Brent’s account balances at age 67!

The chart above is an example for illustrative purposes only and shows the growth of Emma and Brent’s retirement contributions over time, as described.

The $24,000 Emma contributed over ten years while she was in her 20s grew to more than $1.6 million, while the $88,800 Brent contributed over 37 years starting in his 30s grew to just shy of $940,000.

Imagine if Emma had continued contributing from age 30 to 67. She would be well on her way to a secure retirement!

#2 – They gradually increase the amount they save.

Successful retirement savers understand that gradually increasing the amount they save over time can have a significant impact on their assets with a minimal impact on their current lifestyle. These savers often make an effort to increase the amount they contribute to their retirement accounts by 1% to 2% each year. Over time, small, regular increases such as these can have a big impact on your retirement savings, and you’re unlikely to even notice the difference in your net income.

#3 – They prioritize saving for the future.

Saving for the future requires focus and dedication. Successful savers often prioritize saving over paying for non-essential expenses. A great way to prioritize saving is by incorporating it as a line item on your budget. Just as you need to pay the electric bill each month, so should you save for the future.

#4 – They remain focused on the long term.

Successful retirement savers understand the importance of taking a long-term approach, both with their investment allocation and their savings behavior. For example, they tend to establish a long-term investment allocation and stick with it rather than trying to time the market.

In addition, successful savers typically avoid behaviors that could derail their savings goals, such as taking 401k loans or withdrawals before retirement.

#5 – They save in multiple accounts.

Successful savers often save in multiple accounts. For example, you may wish to start by saving enough in an emergency fund to cover three to six months of unexpected expenses. At the same time, be sure to contribute to your workplace retirement account. If you have additional funds available, make regular contributions to an IRA and a health savings account (HSA). Regularly contributing to multiple accounts can help maximize your savings over time.

Could you use some help maximizing your retirement savings? Creative Planning is here for you. Our teams specialize in helping clients make smart financial decisions. We take time to get to know you and understand your needs before implementing custom retirement planning strategies to help optimize your savings. To get started, schedule a call with a member of our team.

This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

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