Many individuals feel the weight of the necessity to save for retirement, driven by the fear that retirement could become a significant disappointment without a substantial nest egg. This concern may be amplified if potential cuts to Social Security become a reality.
However, the challenge lies in maintaining a consistent retirement savings plan, especially in the face of stubbornly high living costs. According to a recent Natixis report, 42% of respondents believe inflation is hindering their retirement aspirations.
If rising inflation is impeding your savings efforts, you can put in place strategies to overcome it. Here are three approaches to consider:
Make the most of your employer’s match in your 401(k)
Don’t forget to take advantage of your company’s 401(k) match. This employer match can alleviate some of the financial pressure associated with retirement savings.
Furthermore, the money your employer adds to your long-term savings can be invested and grow over time. For instance, suppose you’re 30 years old and qualify for a $5,000 employer match in 2024, provided you contribute the same amount to your 401(k). If the stock market returns 8% on average a year (slightly below the plan’s average), that $5,000 employer match could grow to nearly $74,000 by the time you reach 65.
Adopt an aggressive investment approach:
The 8% return mentioned above is contingent on having a retirement portfolio that leans towards aggressiveness rather than conservatism. If you opt for a portfolio heavily weighted with bonds, achieving such returns may prove challenging. Instead, consider a more stock-heavy allocation when retirement is several years away to capitalize on stronger returns that can boost your retirement savings.
Index funds offer a suitable alternative for those less confident in picking individual stocks. These funds provide instant diversification without the need for extensive research on individual investments. Focus on assessing fees and historical returns when selecting index funds.
Explore opportunities in the gig economy for extra income:
In November, inflation remained at 3.1% annually, according to the Consumer Price Index. This might make allocating any portion of your income toward retirement savings difficult.
In such circumstances, turning to the gig economy could offer a solution. There are ample opportunities today to engage in side work that can augment your income, making it more feasible to contribute to your retirement plan.
You need not commit to a side gig indefinitely; instead, consider one that fits seamlessly into your schedule. This approach can make it easier to sustain your savings efforts even as inflation persists.
Inflation may threaten your retirement aspirations, but you can mitigate its effects by taking proactive measures. Seize opportunities for free contributions, adopt an aggressive investment strategy, and explore supplementary income sources through the gig economy. By doing so, you can navigate the current wave of elevated living expenses and maintain progress toward your retirement goals.