Why You Can Relax About Retirement Savings

• Author: Bryan Miller
• Posted: 2024-06-18

The recent market volatility probably does not make you worry any less about your retirement. Even during a bull market, many people stress about whether they will have enough money to eventually stop working. Even more so, they want to have adequate resources to enjoy their retirement years. There are ways to ease your anxiety. Here are five steps that you can take to reduce your retirement anxiety.

Make Automatic Contributions

One of the worst things for your retirement is thought. This leads to angst and worry. The biggest thing that should be on autopilot are your retirement contributions. You should start by having a 401(k) account in which you automatically make contributions every pay period. If you have the ability to do more on top of that, retirement saving in an IRA should be a line item in your monthly budget.

When you make automatic contributions, you do not need to worry about whether and how much you will put away each month. If you were making a conscious decision to put away money, writing each check would be a source of stress for you. Instead, automatic contributions allow you to continuously invest without having to give it a second thought. Many times, this ends up in a pleasant surprise when you check your retirement account balance after not having looked at it for some time.

Forget About a Number

Most people have been told that they need to have their own personal retirement number. While you need a certain amount of money, carrying this number around with you on a daily basis will do nothing but stress you out constantly.

The overall thought remains the same that you will need enough assets for retirement. However, focusing on one number as the determinant of whether you can step away from work can literally dampen your enjoyment of life. You should keep in mind the principles of retirement savings without constantly sitting around with a calculator. You can save for retirement without letting it ruin your life.

Know Your Expenses Are Less

You are likely thinking about how much you need in retirement in the context of your current expenses. This is likely a large part of what is frightening you. For most people, there is almost always a way to make it in retirement.

First, you do not need your entire salary that you made in your working prime in order to make it in retirement. If you have children, you greatly underestimate their effect on your monthly budget. While you may have ongoing expenses related to health care and prescriptions, nearly all of your major expenses are out of the way, meaning that you will be able to live on a fraction of what you lived on before.

You do not need to replicate your entire lifestyle from before during retirement. Once you know that, it should help you take a deep breath and relax. Your goal will not need to be as much as you think once you factor in Social Security.

Realize that the Trend Is Upwards

Many people panic when they think of how much they need and fret that they can never save that much. However, most people do not realize the power of compounding. The stock market will return an average of 7-8% each year over the long run.

This means that you will have some help in reaching the number that you need to retire. With the power of compounding, your money will multiply over time. In other words, you can rest assured knowing that your retirement assets will grow, even if your most recent statement does not make you happy.

Reinvest Dividends

When you purchase the right retirement assets, you do not even need to give them much thought over the years. The best investments to make for your retirement are those that pay out a passive income. When you hold these in a retirement account, you will not need to pay any taxes on the dividends that you earn until you retire. What you make from the tax benefits alone could help ensure your ability to retire.

Even if you buy stocks that pay moderate dividends, the combination of dividend growth and reinvestment will be what makes your retirement. You will need about 25 years in order to realize the full power of dividend reinvestment in your portfolio.