Reach your retirement savings goals by planning wisely

Reviewing these tips can help you get started. If your workplace retirement plan does not have a salary deferral feature – not all plans do – refer to your Summary Plan Document for more information. Many companies only offer Profit Sharing or Money Purchase Pension Plans.

Here’s how to take advantage of your company’s 401(k) plan.

Once you decide to participate, saving becomes automatic. Every pay period, the percentage of your paycheck you have selected goes into your retirement account.

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Workplace 401(k) plans can reduce your taxes and let your money grow more than it would in a taxable savings account. Basically, you keep more of your earnings.

Plus, many employers offer a matching contribution based on the percentage you save. In a way, you get paid to save. And if you aren’t contributing up to your company’s maximum match, you’re leaving money on the table.

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Four Reasons to Save in Your Workplace Retirement Plan

Start saving as early as you can.

The sooner you start, the more time your money has to grow.

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Time is on your side. Even a small amount saved over 30 or 40 years has the potential to become a lot of money, thanks to the power of compounded growth. That means what you put into your account earns income, and the income in turn is reinvested in your account. Compounded growth creates a multiplier effect as your contributions and reinvestments keep building on each other.

The more you save, the better off you’re likely to be. Even if you can save only a little, do it—then save more as you earn more. And remember, it’s never too late to start saving.

For example, just $100 per month of savings could grow to almost $300,000 in 30 years. That’s $252,000 of earnings if your investments grow at an average of 8% annual compound rate of return.

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Choose a variety of investment options.

You’ll often hear about the importance of “asset allocation” in your retirement account. Asset allocation is a way to control risk because you divide your contribution among different investment options available to you through your employer’s plan. In other words, it isn’t wise to put all your eggs in one basket.

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When creating your asset allocation strategy, you choose the mix of investment options among those provided in your plan that reflects the level of risk with which you’re comfortable.

To maintain your desired asset allocation over time, you may need to occasionally rebalance or readjust your portfolio. For example, if your investments grow rapidly, you may find that one portion of your portfolio is larger than you intended. You can rebalance—sell some of those investments and buy something more in line with your risk tolerance—to reset your allocation to the level you want.

Some plans allow you to contribute to a single fund that is associated with the year you plan to retire—the ‘target date’ fund automatically maintains an asset allocation considered appropriate for your time horizon.

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Set priorities.

How can you save for everything you need—house, car, college tuition, retirement? The key is to set priorities and optimize your savings.

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If you focus on selected goals, they will feel manageable. Once you’ve reached a goal, start saving more toward another.

It’s realistic to prioritize your savings to match your life stage. It shows you that saving can be a way of life, and it helps you reach your goals. And the satisfaction of completing each step motivates you to move on to the next.

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Schwab Savings Fundamentals

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