How to Save for Retirement

An increasing number of people are starting to take their retirement finances into their own hands. It's easy to save money for retirement, and there are a few ways to maximize your money.

Instructions

Learn to Save for Retirement

1. Create a budget so you aren't spending all or more money than you earn. It's important that you aren't incurring more debt than necessary so you won't be paying things off after you retire. Even simple things, like making coffee at home instead of buying one on the way to work, can have a large long-term effect on your personal finances.

2. Get into an employer sponsored 401K plan. A set percentage of your paycheck will be withheld, put into this account and release you from some tax obligations on that portion of your earned income. Most employers will also match your contributions up to a certain annual maximum.

3. Set up an Individual Retirement Account (IRA) if neither you nor your spouse has a 401K. An IRA lets you contribute several thousand dollars each year and it is completely tax deductible. A Roth IRA isn't tax deductible, but you won't have to pay taxes on it when you start taking money out.

4. Invest a portion of your earnings into a well-diversified portfolio. You should be holding both stock and bonds in several different industries to lower your risk. A proper portfolio should net you around a 10 percent annual return with minimal management.

5. Go for more aggressive investments when you are in your late 20s and early 30s. Remember that any investment you make could last for close to 50 years. A few high risk start up investments should be OK as long as your portfolio includes secure investments in well established companies to offset any potential losses.

6. Hire a financial professional if you're overwhelmed by the saving and investment opportunities open to you. These services can be expensive, but you really should have a professional guiding your portfolio if you don't understand them. Remember to hire a planner who charges a flat fee and doesn't receive commission.

Tips & Warnings

• The sooner you start saving, the better. Regular contributions really add up once interest builds up over 5 to 10 years.

• You need to increase the money you save for retirement whenever you get a pay raise.

• Don't take money out of your IRA without first looking into the tax penalty for withdrawing. You can often transfer your savings from one retirement account to another with no fees.