3 reasons why your retirement savings aren’t growing as fast as you’d like

You contribute diligently to your retirement accounts, but it seems that your balance barely moves. Sound familiar? You’re not alone. But luckily you’re not unlucky either.

There can be many causes for a stagnant retirement balance, but here are three of the most common and what you can do to fix them.

Image source: Getty Images.

1. You don’t contribute that much

The money already in your retirement account should continue to grow if you’ve chosen wise investments. But if you really want to accelerate your path to fortune, you need to make regular monthly contributions to your retirement account. Ideally, you aim to contribute as much as you should based on your estimated retirement costs.

But saving as much as you want for retirement isn’t always easy. Sometimes you can achieve this by reworking your budget. Look for overspending areas or subscriptions you forgot about, then delete them. Instead, funnel that money into retirement savings.

Other times you need to be more creative. You might consider starting a side hustle or looking for a new job elsewhere. You can also try asking for a raise at your current job. Highlight what makes you a valuable employee and take advantage of other job openings if you have any.

Also consider putting one-time earnings into your retirement savings. If you’re expecting a tax refund or year-end bonus, throw that money into an IRA where it can earn you interest.

2. You invest too conservatively

Prudent investing can reduce your risk of loss, but it can also slow your gains. This forces you to save even more money in the future to retire with a nest egg large enough for all your expenses. The risk of loss inherent in investing can be scary, but there are better ways to manage it than sticking to “safe” investments, like bonds.

First, be sure to diversify your money. You need to make sure that you invest in at least 25 different stocks in a few different sectors. Or if you don’t feel comfortable choosing stocks, choose an index fund instead. This instantly gives you a stake in hundreds of companies, and index fund returns tend to be strong over time.

If you’re worried about investing too much money in stocks, follow the rule of 110 minus your age. It says you should keep 110 minus your age invested in percentage stocks. So a 50-year-old would keep 60% of their savings in stocks and invest the rest in bonds and other safer investments. Over time, you shift your money into more conservative investments to protect what you have, but you do so very slowly so that you can still take advantage of the offer of high-gain potential stocks.

3. You are paying too much

Fees can often go unnoticed, especially for newbie investors, because they come directly from your retirement account. But you should make sure you know what you’re paying in fees, as it can affect how quickly your money grows.

Some accounts, like 401(k) plans, have administrative fees that you can’t do much about. But you have some control over what you pay in investment fees. Mutual funds and exchange-traded funds (ETFs), for example, have expense ratios. This is the percentage of your assets invested in the fund that you must pay to the fund manager annually. So if you have $100 invested in the fund and it has a 1% expense ratio, you’ll pay $1 per year.

You want to avoid expense ratios above 1% whenever possible. Sticking to index funds, discussed above, is a great way to cut your costs. They tend to have low expense ratios – in some cases as low as 0.03%. This helps you retain more of your income each year.

If all else fails, sometimes all you need to do is be patient. This is especially true if you are young. Your investments may seem to grow slowly at first, but over time they will begin to grow faster as you begin to earn more interest on top of your interest from previous years.

About Ian Crawford

Check Also

Retirement savings on PIP: How can I provide a pension for my daughter who is applying for a PIP | Personal finance | Finance

“I have a 40 year old daughter who is autistic (high scale) currently on PIP. …