The 5 Best Ways to Save for Retirement

It is possible to save a substantial amount for your retirement, even if you do not earn a lot annually. Many Americans are able to retirement fund out of $40,000 or less a year, yet others report having less than $25,000 in retirement savings [1]. What causes this divide?

A lot of growing your nest egg is about smart and consistent saving, not putting away fast money. Based on the advice of financial experts, here is the list of the 5 best ways to save for retirement.

Get and Stay Out of Bad Debt

Individuals who carry debt face a massive impediment to retirement saving [2]. The longer it takes to pay off debt, the more interest accumulates on the principle amount. Even a small amount of credit card debt or loan repayment can divert money from a retirement fund to these interest payments.

Therefore, it is pertinent to pay down debt quickly. Financial planners recommend that you pay down high-interest debt first [3]. This makes sense to efficiently make your liabilities less than your income. However, many debtors find it is easier to tackle this task card by card. Start with the balance on a card and pay it off entirely, then move to the balance on the next card [1]. Eventually, you will find yourself free of credit card debt and surprised by the extra funds available for retirement savings.

True, not all debt is created equal, but getting out of debt applies to all non-mortgage debt. This recommendation includes any and all student debt [4]. Many people have college loans that were necessary to complete higher education. This debt has a tendency to hang over your head for a long time, and eventually it will cut into the amount you put away for retirement.

Think About Your Paycheck’s Potential

Planning for retirement is a constant struggle between immediate gratification and future benefits. This is most obvious when you consider where and how your paycheck is distributed. You are already sacrificing to taxes and Social Security, and sometimes it is difficult to imagine other chips from that regular payment when you first start in the workforce.

Yet, the smartest savers begin at an early age. In fact, the first years of your career are the best time to begin retirement saving. At this time employees are likely to have fewer expenses and responsibilities. People can also take more risks on investments. Experts say people should be putting away retirement money by age 25 [5].

As well, the longer your money sits in a retirement fund, the more interest it can build and the greater returns you will see from investments. If your money has been building since the young ages of 22 or 23, it can exponentially increase the amount of money you have at 90,

Plan, Budget, Execute

 Saving starts begins with less spending, and a man with a plan is much more likely to succeed. Of course, the same goes for a woman. This is why a planned out and written budget will lead to more substantial retirement savings. As well, a budget will help you meet immediate financial goals, which is great training for the bigger task of putting away enough money for retirement [3].

The goal of this careful budgeting is to spend less than you earn, which even means on yearly vacations and other major expenses [2].

A budget gives you something tangible to achieve, and it is a great way to stay accountable. Be sure to share this budget with your partner, and keep one another in check if certain spending habits throw it off course. As well, if a major expense arises, determine where that fits in the budget. It should be something that can become part of your plan instead of a budget buster.

Key Contributions Through Company Plans

Most people will incur hundreds of thousands of dollars in basic expenses during retirement, and the savings in a 401(k), Roth IRA, or other savings plan needs to cover all of these costs. To ensure you do not come up short it is essential to put aside as much money as possible through your company’s retirement plan.

As well, income that is put into a retirement savings account is not taxed when deposited, only when distributed [3]. Therefore, take advantage of the tax shelters for retirement funds, and maximize the amount you can save for later in life.

At the onset, paying in the maximum annual contribution to a 401(k) or other company plan can feel like a huge sacrifice of spending money. Experts recommend paying in 2% of your paycheck to begin [1]. Individuals and families quickly forget about money that is never deposited into a bank account, so have this taken directly from your paycheck [4]. Lifestyle and spending decisions will follow suit.

Therefore, after a short amount of time it is easy to increase the amount paid into a retirement plan. Eventually, the goal is to pay the maximum contribution amount into your 401(k) or Roth IRA. The same goal can be set for payment into a health savings account (otherwise known as a HSA).

Hand in hand with maximum contributions through you savings plan is ensuring you take full advantage of a company’s matching contribution from your employer [3]. There are a number of companies that offer matching programs, and will even match up to the maximum contribution allowed under federal law. These matching benefits from an employer result in free money for you [2].

Diversify Your Investment Portfolio Early On

Learning how to account for losses is incredibly important for a smart and successful investor. If you plan to build you retirement on the stock market and a 401K-investment portfolio, then it must be well managed and diversified. A financial planner or investment account manager will be able to offer advice on how and where to put your money in the market, but in general the recommendation is to invest in stocks over bonds [4].

Although diversification, even in your 20’s is important, when you are younger is also a great time to take more risks in your portfolio [2]. The ramifications of losses are not as dire or immediate (as you have plenty of time to recoup the funds), but a big return means the time to build interest and other investments with that money.



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