How to Wisely Save Money for Retirement

The best way to save money for retirement, most experts agree, is to pay yourself first out of every paycheck. That way you can’t spend it! A target proportion to save is 10-15% of your gross income. This takes discipline and vision, but it separates the will haves from the won’t haves.

Difficulty: Moderate

Instructions

Things You'll Need:

• Self-discipline

1. If your employer has a 401k or equivalent plan, contribute the maximum allowed by law if you can, but at least up to any matching amount your employer offers. People who are serious about saving for retirement will allocate at least 10% to their 401k. Your chosen amount or percentage should be automatically deducted from your paycheck so that you can’t be tempted to spend it.

2. If you don’t have an employer 401k type plan, then set up an IRA with automatic deductions from your checking account going to it each month. Again, this is so you don’t spend the money but force yourself instead to save money for retirement. Contribute the maximum allowed to your IRA. (Those with 401k plans may want to do this as well.)

3. Invest your retirement savings wisely. You should diversify to limit risk. Choose a minimum of four types of mutual funds: Aggressive Growth, Growth, Growth and Income and an International Fund. Invest equally in each fund. If you are 60 or older, invest less in the Aggressive Growth fund. The regular investments (each paycheck or month) result in dollar cost averaging and you buy more shares when the market is down. So don’t stop saving when the market goes down. That is the best time to buy!

4. If you are one of many people who spends more than they make, then you need to change! It is critical that you start living within your means. Spending less than you make is the key to financial security. Get professional help if you need it to learn how to live this way.

5. If you have credit card or installment debt, develop a plan eliminate it. Once eliminated, pay cash for everything. You’ll buy fewer things and less expensive things, keep vehicles longer, and be able to put aside even greater savings for retirement. But don’t wait until your consumer debt is eliminated before you start saving money for retirement. Start small if you have to, but make saving for your retirement a habit right away.

6. Watch your retirement savings grow and double according to the rule of 72. Divide the average growth rate you’re achieving or expect to achieve into 72 and the result is the number of years it will take your money to double. For example, if you’re getting an 8% annual return then your money would double every 9 years (72/8 = 9).

Tips & Warnings

• Get started saving for retirement this month! Do not put off saving money for your retirement. You must develop the habit of saving and stick with it if you want to have a happy retirement.
• Don’t worry about stock market ups and downs; you are in it for the long haul!
• You can’t rely on social security. It will help, but it won’t be sufficient for a decent retirement.
• Seek help from a professional financial consultant if you are in need of a detailed plan or are in financial difficulty. And whatever you do, don’t spend your retirement savings before you retire!

Resources

• How to Use the Power of Compound Growth to Create Wealth
• How to Invest in Mutual Funds
• How to Use Dollar Cost Averaging

[FrazzledNanny]

on 3/31/2009 Great article on saving money for retirement. We have a 401K and a savings. We also have a few stocks. I will show this to my husband to see if there is more we can do. 5*

[sonni57]

on 3/16/2009 Great article on how to save money for retirement.

[ccard123]

on 3/16/2009 Great tips for retirement savings! Thanks. 5*

[grove]

on 3/16/2009 Really helpful tips here. I need this info.

[writedesign]

on 2/20/2009 We do much of this. We're on track for a good retirement one day. 5*