3 Signs Your Retirement Savings Will Let You Down

The monthly benefits you collect from Social Security probably won’t be enough to sustain you during retirement. That’s why saving on your own is so important. The average senior on Social Security today collects roughly $20,000 a year. That’s enough to help cover the bills, but you’re probably used to living on a lot more. The good news is that a healthy 401(k) or IRA balance can help fill that gap and help ensure that you have enough income to maintain a comfortable retirement lifestyle. But if you’re not careful, you could wind up deeply disappointed with your nest egg. Here are a few signs you’re on that path.

1. You’re not committing to your contributions

It’s important to fund your retirement plan every month. And so if you’re only sticking money into your account on occasion, or when it’s convenient for you, you may be setting yourself up for a massive retirement income shortfall. A better bet? Be consistent. If you have an IRA, don’t just transfer money into that account when it works out. Instead, find an IRA that offers an automatic savings feature — one that lets you send money from your checking account into your retirement plan every month right off the bat, before you get a chance to spend your paycheck. Now if you have a 401(k), you may be more likely to fund your savings consistently, since 401(k) contributions are taken as payroll deductions. But make sure to enroll in your plan every year if your company doesn’t enroll you automatically.

2. You’re not increasing your savings rate from year to year

It may be difficult to max out your retirement plan contributions for the year — especially with a 401(k), since these plans come with much higher limits than IRAs. But if you’re not increasing your savings rate from one year to the next, it’s a sign that you might fall short later on. An easy way to boost your retirement plan contributions is to simply save your entire raise. Since it’s money you’re not used to living on, you may not miss it if it lands in your 401(k) or IRA.

3. You’re investing your savings conservatively

The money you put into your retirement plan shouldn’t just sit in cash. Rather, you’ll need to invest that money so it grows into a larger sum over time. But if you play it too safe and stick to bonds, you’ll stunt your savings’ growth and potentially wind up with a significant shortfall. Though bonds are considered a less risky investment than stocks, they also don’t deliver the same strong returns. And so if you’re many years away from retirement, it pays to go heavy on stocks in your retirement plan. If you have an IRA, that could mean hand-picking individual stocks that are likely to perform well over time. If you have a 401(k), you can’t choose stocks individually, but you can look at broad market index funds instead.

Set yourself up for success

A solid nest egg could be your ticket to a financially secure retirement. If these signs apply to you, take steps to address them rather than risk a massive income shortfall that makes your retirement nothing but miserable.