A lot of people fail to see the benefits of growing a nest egg for retirement as early as possible. Here are four quick and easy-to-follow steps so you avoid making the same mistake.
4 Easy Steps to Build and Grow Your Nest Egg for a Comfortable Retirement
Step 1: Work on Your Budget
If you want to grow your retirement nest egg, the first thing you need to do is create a budget. Your budget helps you in planning how to manage your money.
It limits your spending and tells you how much you should start saving to achieve the lifestyle you want to have when you retire. If you are in debt, whether it be credit card debt or a real estate mortgage, a budget also lets you pay it off as soon as possible.
When you get out of debt, your budget guides you towards building wealth. It’ll tell you how much you should allocate for building an emergency fund, how much you should start investing, or how you can expand your portfolio.
Even when you reach retirement, you’ll still need that budget. During this time, it helps with wealth management and protection.
A budget will help you build not just your savings, but also your retirement income.
Establishing a budget is an essential first step in creating a retirement plan. It allows you to map out your savings, expenses, and investment strategies for the future.
A budget serves as the foundation of one’s financial stability.
Step 2: Let Automatic Savings Develop Your Nest Egg
The next step is to pay off student loans, credit card debt, etc. Except for your mortgage, pay off everything you owe.
When you get out of all that debt, you have to start saving at least 15% of your income. Allot that 15% towards wealth building.
If, for example, your employer offers a Roth 401(k), then save your 15% in the bank. If they offer a traditional 401(k), start investing up to the match offered by the company.
Afterwards, max out the Roth Individual Retirement Account (IRA) option. If, after all that, you still haven’t invested your entire 15% towards building your nest egg, then go back to the 401(k) to finish it off.
You should also keep catch-up contributions in mind. Remember that the Internal Revenue Service (IRS) allows individuals aged 50 and above to put extra money in their 401(k)s and IRAs.
Individuals can contribute as much as $6,000 more for 401(k)s. They can also add an additional $1,000 to their contributions to an IRA.
Keep in mind that investing can be a complicated affair. As such, it’s best to speak with financial advisors even if your employer offers a retirement plan.
Financial advisors can answer all your retirement questions and give you proper guidance regarding your investments. This is a must especially when it comes to planning for retirement.
Often, one’s investment strategies have to adjust depending on one’s age, goals, financial standing, capacity for risk, and current situation. Working with financial advisors helps you maximize the growth of your money.
Step 3: Pay off Your Mortgage
When you have set aside your 15% for building your nest egg, you need to allot more money towards paying off your mortgage. The goal is to lose that debt as soon as possible.
Yes, this means sacrifices. However, remember that nothing good comes easy.
Just imagine how much you could be saving and investing for your future if you could lose those mortgage payments. By the time you reach retirement, those early sacrifices could lead to tens of thousands more in assets and investments.
If you are already in your late 50s or early 60s and you still haven’t saved enough for your retirement, then changes really have to be made. You might need to downsize by selling the house and paying off the mortgage.
You could use the extra cash to buy a smaller, less expensive place. Whatever remains of the money could be used toward the reinforcement of the nest egg.
For all you know, that extra investment might be the key to your early retirement.
Yes, the house might hold sentimental value. You have to keep in mind, however, that sentiment alone won’t be able to pay the bills.
Step 4: Make Annual Contributions to Your Nest Egg
For most people, an increase in their salaries means an upgrade in their lifestyles. That bigger salary often equates to a fancier car or a nicer wardrobe.
Instead of using that increase for unnecessary luxuries, why not invest it in your nest egg? An additional 2-3% contribution to your retirement accounts per year can make a big difference in your financial security in the long run.
For example, a 35-year-old man makes $40,000 and starts investing 15% of his income. After the first year, with a 10% rate of return, he has $6,600.
Assuming the man gets a 3% salary increase every year and increases his investing amount to match, he will then have over $100,000 in ten years. If he keeps the habit up until he reaches 65 years old, he will have over a million dollars.
If he continues saving and investing until the age of 70 (or if he starts earlier), he will go over $2 million. That’s how much that additional 3% matters.
A retirement nest egg is an essential key to living a comfortable retirement. The steps given in this article can help guarantee you achieve your financial goals for your retirement fund and ultimately, enjoy your golden years.
Do you have other tips about growing a nest egg for retirement? Share them with us in the comments section below!
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