[This article was archived on 8/3/2016.]
It may sound obvious, but saving consistently throughout your career is critical toward building your long-term savings for retirement. That's right, saving consistently – even in small amounts – over the years is often more beneficial than trying to save large amounts later in life because consistent saving allows your savings more time to grow.
This is where you may have a big advantage. If you participate in your employer-sponsored retirement plan, your contributions are already automatically deducted from your paycheck – an important first step to becoming a consistent saver. If you are not contributing, you should consider getting started immediately! Following are four things to keep in mind as you build your savings:
1. Start Now!
Unfortunately, far too many individuals put off saving for retirement. When you consider that 45% of American workers have less $10,000 in their nest egg, waiting to save could be a big mistake.1
For example, suppose you're 35 years old and start contributing $100 a month ($50 each biweekly pay period) to your employer-sponsored retirement plan, continuing for the next 30 years. As the chart shows, you could potentially have over 30% more in savings by the time you turn 65 than if you waited five more years to start saving.
2. Take Full Advantage of Your Company Match
Many company-sponsored retirement plans offer an "employer match." This means that the employer will match a certain percentage of your contribution, up to a specific level of your salary – for example, 50% of contributions up to 6%. Check with your Human Resources or Benefits department to learn if your plan offers an employer match, and if it does, take full advantage of it.
3. Increase Your Contribution
Increasing the amount you regularly contribute, even by one, two or three percentage points, has the potential to make a significant difference in the long-term accumulation of your retirement savings.
Consider the following hypothetical example: Sue is 40 years old and earns $40,000 a year. Currently, she contributes 3% of her annual salary to her company-sponsored retirement plan and has $30,000 saved. If she stays on this path, she will accumulate $196,714 by the time she turns 65. Now look at how much the value of her savings will grow if she increases her contribution rate by one, two or three percentage points. Consider further the potential impact of an employer match.
4. Don't Stop Contributing
To help maximize your retirement savings, it's important to keep contributing to your plan without interruption.
One advantage is that any pretax amounts you contribute aren't taxed until you withdraw them. And regardless of whether you contribute pretax or after-tax amounts, your contributions grow tax-deferred, giving your savings the opportunity to grow faster. In addition, any interest and/or investment earnings accumulate on a tax-deferred basis until they are withdrawn.2
Over time, the power of tax-deferred compounding can help you build a larger account than may be possible with a taxable account earning the same return. Moreover, you're earning returns on amounts that otherwise would have been paid in taxes. Of course, this depends on your investment choices, the performance of the financial markets and other factors.
To find out more about saving for retirement, contact your local Mutual of America representative or call 1-800-468-3785.
This hypothetical example is for illustrative purposes only and does not represent any actual investment performance, price or yield. This illustration assumes a beginning balance of $30,000, assumes no increase in earnings and has a constant effective annual rate of return of 6%. Please note: Monthly compounding is being used for this hypothetical illustration only. Investment returns are not guaranteed and your actual return may vary significantly from that shown.
12015 Retirement Confidence Survey, Employee Benefit Research Institute and Greenwald & Associates.
2Generally, withdrawals are subject to income tax at your ordinary income tax rate at the time of withdrawal, and if made prior to age 59½, a 10% federal tax penalty.
Before investing, you should carefully consider the investment objectives, risks, charges and expenses of the variable annuity contract and the underlying investment funds. This and other information is contained in the contract prospectus or brochure and underlying funds prospectuses and summary prospectuses. Please read the contract prospectus or brochure and underlying fund prospectuses and summary prospectuses carefully before investing. The contract prospectus or brochure and underlying fund prospectuses and summary prospectuses can be obtained by mail or by calling 1-800-468-3785.
Mutual of America's group and individual retirement products are variable annuity contracts and are suitable for long-term investing, particularly for retirement savings. The value of a variable annuity contract will fluctuate depending on the performance of the Separate Account investment funds you choose. Upon redemption, you could receive more or less than the principal amount invested. A variable annuity contract provides no additional tax-deferred treatment of benefits beyond the treatment provided to any qualified retirement plan or IRA by applicable tax law. You should carefully consider a variable annuity contract's other features before making a decision.