5 ways to help make saving for retirement easier

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Does it feel like the older we get, the faster life seems to fly by? Although retirement may seem far off in the horizon, it’s never too early to invest in a stronger savings strategy for your future, as well as one that helps you prepare for life’s unexpected curveballs. Let’s explore five best practices to help you boost your financial strategy and help achieve your retirement savings goals.

The fresh start effect

The fresh start effect is a strategy that involves tying a change you're hoping to make to a significant date, like the beginning of a new year or new job. Research shows that we can take advantage of these dates because we're more likely to follow through with the change if it starts on a significant date.1

For example, you could start funding a backdoor Roth IRA on your birthday. Another approach would be to increase your retirement contributions on the first day of the new year. Additionally, the start of a new job is a perfect opportunity to explore your company’s 401(k) retirement plan options and how much you can invest.

Payroll deduction or automated transfer

Another financial strategy to consider involves payroll deduction and auto-transfers. This is a great way to automatically contribute an income percentage or dollar amount toward an investment or expense. Examples include your 401(k), individual retirement account, health savings account and insurance premiums. 

By using this approach, you gain the advantages of convenience and time savings. There’s "one less thing to think about," as you can reduce the burden of having to remember to make transfers. There’s also the added benefit of not having to see the money leave your account or procrastinating completing the transfer because you’d rather not part with your funds. 

Retirement plan auto-escalation

If your employer offers automatic escalation with their retirement plan, you may want to consider taking advantage of the offer. With this option, you can periodically increase your contribution rate to your retirement plan at certain intervals, typically by 1% each year. For example, if you start your employee contribution at 10% in year one, you can choose to automatically increase your contribution to 11% at year two, 12% at year three, etc.

The benefits are similar to that of payroll deduction and automated transfers. By using retirement plan auto-escalations, you gain a convenient tool that takes away the burden of having to remember to manually complete the transactions. It also allows you to commit to saving now without feeling the budget impacts immediately.

Dollar cost averaging

Using this approach, you can steadily build your portfolio by investing a fixed dollar amount at regular intervals, thereby "averaging out" your share price over time. This strategy can also be helpful if you're uncertain of when you want to start investing. By buying a smaller amount at set intervals, you can help mitigate the risk that you'll be buying in right before a market decline.

Once you’ve decided on a fixed dollar amount to invest systematically, you take the procrastination out of the situation. You can choose to systematically invest in mutual funds, exchange-traded funds (ETFs) and/or individual stocks. An added benefit to this approach is that dollar cost averaging lets you focus on what you can control — investing a set amount on a regular basis — rather than what you can’t — the ups and downs in the market.2

Auto-rebalancing your investments

Auto-rebalancing can occur on a calendar or threshold basis. With calendar rebalancing, select investments are bought and sold to bring your portfolio back into alignment with your risk tolerance, time horizon and long-term goals at specific intervals, typically once or twice a year. When done on a threshold basis, auto-rebalancing occurs whenever your portfolio moves from its target mix by a certain percentage.

Among its many benefits, auto-rebalancing can help align your investment risk with your goals and objectives by regularly bringing your portfolio back to its target asset allocation. This approach can also help remove emotion from the investment equation, especially during times when the market may significantly fluctuate, all while offering the convenience of a hands-off approach.

How Edward Jones can help

From the fresh start effect to auto-rebalancing, there are many convenient ways to increase your financial savings for retirement. And combining these strategies could lead to even bigger improvements in your financial strategy. For more information on these best practices and important tools and factors to keep in mind, contact your Edward Jones financial advisor.

Important information:

1 “The Fresh Start Effect: Temporal Landmarks Motivate Aspirational Behavior,” Hengchen Dai, Katherine L. Milkman, Jason Riis.
2 Dollar cost averaging does not ensure a profit or protect against loss. Such a strategy involves continual investment in securities regardless of fluctuating price levels. Investors should consider their willingness to keep investing when share prices are declining.