401K, IRA, Stocks How to Save for Retirement: 7 Ways to Save Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by Jim Wang Published Oct 26, 2021 - [Updated Jun 28, 2023] 6 min read Reviewed by Katharina Reekmans, Enrolled Agent The idea of retirement, something decades away, can be scary. What if you make a mistake today that prevents you from retiring when you want to? What if the stock market tanks again? What if… the list goes on and on. Table of Contents Open retirement accounts as soon as possibleMake sure you get all of your employer matchIncrease your contributions to your 401(k) by one percent per yearAnytime you get a raise, send all of the recurring increase to retirementOpen a Health Savings AccountKeep an eye on your long-term goalsGet aggressive earlyTakeaways: How to Save for Retirement By now, you probably know that it’s important to save for retirement. But do you know how to save for retirement? You may want to consider a few of these tactics below to make saving for retirement seamless — you may not even have to wait till 65 to reap the benefits. Open retirement accounts as soon as possible Learning how to save for retirement is not a lesson many are taught in grade school, but it’s imperative that younger people understand the benefit of saving before they even see a single gray hair. The key to a successful retirement is to start saving early. When you’re just starting out, you may not have a lot of tools in your belt, but one thing you have plenty of is time. Even small amounts deposited into an IRA or 401K can have a big payoff, given enough time, because of the power of compounding interest. In those first few months, you may not be able to make very big contributions and the slow growth of your balance may not feel worth it for years, but every little bit helps when you’ve got time on your side. Consider this: A 65-year-old who put $10,000 into an index fund in a retirement account 40 years ago and then never saved again would still have more than $200,000. See the power of starting early? Note that self-employed workers should start building their retirement too. Make sure you get all of your employer match Knowing how to save for your retirement is important but actually growing your retirement account sometimes involves a bit of luck or strategy — like working for an employer who offers a matching 401(k) benefit. Some employers match the contributions you make to your 401(k) dollar for dollar — usually up to 6 percent of your salary. In other words, if you’re lucky enough to find yourself in this situation, you can have only $100 deducted from your paycheck but magically find $200 more in your 401(k). Your Human Resources department can fill you in on the specifics of your company’s particular 401(k) match, but it’s safe to say that if it’s available, you should definitely get the full amount of the employer match you’re being offered. Increase your contributions to your 401(k) by one percent per year When you first start working and building up a nest egg, it can feel overwhelming seeing a big deduction come out of an already meager paycheck. Even still, you should choose the biggest deduction you feel financially comfortable with. During that first year, you’ll get used to living on that amount of money — so comfortable, in fact, that you would hardly even notice a difference if you added 1 percent more to your 401(k) contribution when your one-year work anniversary rolls around. This is a simple way to make a seemingly insignificant increase each year — so low you probably won’t even notice it’s gone — yet before you know it, you’ll have painlessly given your retirement savings a real boost! This works for the same reason that investing early works — over time, small changes make a big impact. Anytime you get a raise, send all of the recurring increase to retirement Humans are innately adaptable. Most of the time, this is an asset; sometimes, however, it can work against us… like when a raise rolls in. For many people, an increase in pay is quickly swallowed up by lifestyle inflation. The solution? Don’t get used to that number even being there! You’ve gotten used to living on the old amount. Pretend that the additional cash never showed up by increasing your 401(k) paycheck deductions by an equal amount. This isn’t to say that you should rob yourself of a congratulatory splurge; you worked hard, after all! But make sure that the splurge is a one-time treat rather than a recurring thing (e.g. Treat yourself to a fancy dinner once rather than moving into an apartment with higher rent). And if you don’t like the idea of putting all of your raise into retirement, that’s OK, just put in part of it. Keep the rest for yourself; you’ll still have boosted your contribution. Open a Health Savings Account Besides time, another advantage new savers often have is their health. Chances are that you won’t need to make use of your employer-provided health insurance as much as your older co-workers so it might make sense for you to get a high-deductible health plan. One benefit of such plans is they make you eligible to open a health savings account. Your employer might even help you out by making recurring contributions to your health savings account. What’s more, the money you put into the account that you don’t use by the end of the year can still be used for medical expenses later in life. And after you reach retirement age, you can use anything leftover however you want. If your employer offers one, an HSA is an option that’s definitely worth looking into. Keep an eye on your long-term goals The best way to stay loyal to savings is to have a reward in mind. Whether that’s an extra couple years of retirement, a vacation home, being able to travel the world, or pursuing a second degree later in life — keeping your eye on the prize will help you feel motivated to get there. It may feel admirable to say you’re going to put half your month’s earnings into retirement, but if you can’t commit to that amount, then you’ve not only not met your goal, but you’ve also disappointed yourself — and that can be a real motivation killer. Get aggressive early Investing in stocks can feel like a wild ride sometimes. Historically, stocks have outperformed their less volatile counterpart, bonds, by approximately 5 percent per year with those averages. That 5 percent compounded over a few decades can add up to thousands—or even millions—more for you to use in retirement. Of course, if you’re in the middle of retirement, you might not want to risk a huge drop right when you need that money, but when you’re many decades away from retirement, you’ve got plenty of time to bounce back from a bad year and come out on top. Takeaways: How to Save for Retirement If you want to learn how to save for retirement, the best way to start is by opening up your own retirement account. The next step is regularly contributing to your retirement account as early as possible to take advantage of compounding interest. Saving for retirement doesn’t have to be scary; with a few time-tested approaches, you can retire with a healthy nest egg and none of the headaches! Previous Post Investing 101: How, Where, When, and Why to Begin Next Post Five Tips to Help You Figure Out How Much to… Written by Jim Wang More from Jim Wang One response to “How to Save for Retirement: 7 Ways to Save” Your examples are exaggerated, what 25 year old has 10 grand to dump into an index fund all at one time, very very few if any. One would be better served buying U. S. Savings Bonds … one $12.50 bond out of each pay check for 40 years, simple and everyone can understand it, later after you max out your IRA’s etc. you can diversify. Start out and keep it simple. I’m 75 and was a small business owner, 4 employees and did extremely well for retirement. You might stress how important it is to own your home and not have a mortgage. 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