5 Ways to Improve Net Worth for Retirement

5 Ways to Improve Net Worth for Retirement

Current retirees in America have one massive, collective fear; outliving their money. Many people get to retirement and their golden years get cut short by a lack of funding, and sadly these individuals oftentimes are forced to go back to work or to severely cut down consumption, especially if they physically no longer can work. Given this problem, here are five ways to protect and grow your net worth, whether you are currently retired or looking to prepare for it:

Track expenses and budget. If you have heard this before, it is for good reason. Budgeting can be weekly, monthly, annually, or any other method, that is not the essence. The most important part of this is knowing where every dollar is going. Once you are in the habit of tracking every dollar, finding ways to trim those spending dollars becomes a lot easier, leading to more funds available to invest and grow for your future net worth.

Pay Yourself First. This is a profound concept that I have heard many times in my career but rarely seen implemented. The analogy goes a little like this: every month you have people lining up at your front door, each one with a bill in hand. Most individuals go down the line and pay for their rent/mortgage, their utilities, their internet/cable/phone bills, groceries, etc.

Who is left last in line, when there is no money left? The savings vehicles. Instead, put yourself (savings) at the head of the line and put a specific amount in there at the beginning of every month, and only spend what is left. If you end up having to cut the cable because it is no longer in the budget, you’re not alone. And you will be better off for it long term.

Automate your savings. This idea goes hand in hand with #2. 401(k) payroll deductions are the easiest way to automate savings, and oftentimes give you a boost through employer match, but there are more and more ways to automate coming out almost daily. Banks now offer automated transfers to brokerage or savings accounts to help their customers siphon off funds to untouchable accounts. Additionally, there are a few apps that really help to nickel and dime you into saving more. The Acorns app will round up all of your purchases; if an item costs $0.99 it will invest $0.01 for you. If you spend $25.22, it will

Additionally, there are a few apps that really help to nickel and dime you into saving more. The Acorns app will round up all of your purchases; if an item costs $0.99 it will invest $0.01 for you. If you spend $25.22, it will transfer $0.78. After a year of these transactions that you will not notice when they happen you will see significant savings. Other free savings apps include Digit, Simple, and Tip Yourself.

Pay attention to fees. The biggest debate in the investing world for the past quarter century has revolved around active versus passive investing. In short, the difference is that passive investing is a “set it and forget it” method, whereas active means constant trading. Much has been written on the virtues of both, however the one clear cut consensus is that active investing costs much more. Most active funds charge an upfront cost known as a sales load, plus ongoing annual expenses. Passive funds, on the other hand, typically have no sales load and lower annual expenses. For example, a $10,000 portfolio with no additions held for 10 years and earning 6% annually would become

Most active funds charge an upfront cost known as a sales load, plus ongoing annual expenses. Passive funds, on the other hand, typically have no sales load and lower annual expenses. For example, a $10,000 portfolio with no additions held for 10 years and earning 6% annually would become $15,386.30 with a 5% sales load and 1% annual fees, which are standard rates. The same exact portfolio with no sales load and only a 0.25% expense ratio will instead turn into $17,465.77. Imagine the difference after 20 or 30 years; the disparity grows exponentially. The active argument is that the investor’s returns will be higher, high enough to negate

The active argument is that the investor’s returns will be higher, high enough to negate the fees. That is not for me to evaluate or answer. It is up to you to determine your comfort level, evaluate the fees you are paying, and decide for yourself how to get the best return for the lowest long-term cost.

Plan B. Finally, it is imperative, if one wants to make it to retirement with an in-tact net worth, to always have a Plan B in place. You can do everything above, but if something derails that plan, you could spend months or years recovering from the unexpected loss and paying back unwanted debt.

To avoid this, a couple of things. First, check what your employer offers by way of Disability Income Insurance and max it out, including getting additional, private DI if necessary. Second, create an emergency fund. You can invest this, but be sure that it is in a relatively stable investment that can easily be turned into cash when needed. How much should you put in? Start by making sure all deductibles are covered, in case your house or car is in need of instant repair.

Next, save enough to fund the gap from your Disability Insurance to your actual required income for at least three, and hopefully six, months to cover all expenses.  To avoid this, a couple of things.

First, check what your employer offers by way of Disability Income Insurance and max it out, including getting additional, private DI if necessary. Second, create an emergency fund. You can invest this, but be sure that it is in a relatively stable investment that can easily be turned into cash when needed. How much should you put in? Start by making sure all deductibles are covered, in case your house or car is in need of instant repair.

Next, save enough to fund the gap from your Disability Insurance to your actual required income for at least three, and hopefully six, months to cover all expenses. Most people will end up with at least one unforeseen incident over their working years that cause a financial hardship. Make sure you are sufficiently prepared to cover this without going into the hole for it. Your wallet will thank you later.

These are just five simple suggestions to help you boost your retirement net worth one baby step at a time. There are many other ways out there that can help as well. Do whatever will work best for you. The first few are offensive strategies, but any sports player knows that defense is just as important to winning as offense. The fifth and final strategy is the defense that allows us to play offense at the top of our financial game.

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