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.
By now, you probably know that it’s important to save for retirement. And if you’ve already started, you also know it’s not easy at times. Try a few of these tactics 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
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 a IRA or 401K can have a big payoff, given enough time.
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?
Make sure you get all of your employer match
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 all 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, 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. Past years provided a perfect example of this when the market (as measured by the S&P 500) fell 40 percent in 2008 then increased by 30 percent in 2009. This volatility isn’t without reward, however: 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.
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 headache!