Retirement is a hot topic right now, namely because most Americans aren’t saving enough for their twilight years or aren’t saving anything at all.
Yes, as we’ve covered extensively in this space before — only about 10 percent of all Americans are confident that they’ll have enough sacked away to live out their retirement years comfortably. On the other hand, 45 percent of Americans are worried they’ll run out of money in retirement, while about 15 percent of Americans say they have no retirement savings at all.
Now, obviously there are a lot of factors that are influencing the groups of Americans that we mentioned above. And for those that aren’t saving enough or anything at all for retirement, know that it’s never too late to take corrective action. And being that retirement savings is such a hot topic right now, there’s plenty of good advice to share when it comes to saving properly for it. The latest bit of advice is to try to max out your annual retirement contribution as early in the year as you can. This post will take a look at why.
It’s Time In, Not Timing
With many investments, reading the market and acting when the time is right is the key to prosperity. However, that’s not the case with retirement savings. No, with retirement savings, it’s time in the market, not timing the market. This means that the more time your money is spent invested, the better your final outcome is likely to be — especially with an investment that tends to be more conservative rather than aggressive.
Noting this, you can see why it makes sense to max out your annual retirement contribution, so it can spend as much time as possible growing in the marketplace. Think of it this way: Markets are likely to mature and your investments are likely to grow over time. So, if you maxed out your 401K or IRA contributions to the IRS maximum in January, it’s got 11 more months of growth compared to if you were to hit your maximum in November of the same year.
How much more money could maxing out retirement plans early in the year amount to? One expert believes that an IRA that hits its maximums early in the year for 10 years would have nearly $9,000 more in it at the end of the decade than one that doesn’t hit its maximums (or hits it later in the year). Unfortunately, data from Fidelity states that only about 9 percent of all Americans max out their retirement contributions, with the vast majority of them (80 percent) doing so in the second half of the year.
How Much Can You Invest Per Year?
Noting the above, you might be wondering just how much you can contribute until you hit the maximum each year? For 2019, the IRS set maximum investment amounts at $19,000 for Americans under 50. For IRA accounts, the maximum is $6,000. In a perfect world, you would be saving for retirement in one of each, and hitting the maximum contributions early in the year for each one.
Can’t max out your retirement contributions? Follow these tips until you can:
- Make sure you’re investing at least enough to get the maximum match that your company offers on 401K plans.
- Diversify your retirement savings — don’t put all of your eggs in one basket when it comes to your financial future.
- Don’t panic: In long-term savings such as your retirement plans, the market is certain to have ebbs and flows over time. Stay the course, and remember your retirement is a marathon, not a race. As long as you have the right strategy in place, you’re likely to hit your goals in the long run.
Is your retirement savings strategy up to snuff? Are you able to max out your annual contributions early in the year? Take the time to properly assess things today.