Retirement can feel a long way off, even for those of us who have been working for years or decades already. Whether you've been saving for years already or are just getting started, putting money aside for your future is essential to living comfortably in the twilight years of our lives. The good news is, you don't have to manually save every last dollar you intend to spend during your retirement. Compound interest, employer 401k matches, and tax-free vehicles like IRA accounts mean there are lots of ways to safely grow your nest egg into a reliable safety net for later years. Read on for our top five tips on saving for retirement!
401k All the Way
You've likely heard it before, but NerdWallet hammers the point home because it's the number one tip for maximizing your retirement savings - contribute as much as possible to your 401k each pay period. If your employer offers a 401k match program, even better. These programs will match your contribution to your 401k up to a percentage of earnings, typically around three to five percent. It's a zero-effort way to double the contribution being made to your retirement savings every month.
Don't Forget to Diversify
Building a nest egg for retirement almost always involves making investments, often through a financial advisor. HowStuffWorks reminds us to be sure to talk with your advisor about the importance of diversifying your investments in a number of different areas, including stocks, bonds, and treasury bills. Diversified investments mean that you won't be dealing with a financial disaster if one or two individual investments take a big loss, so you can get a good return without losing sleep at night.
Insurance Is Your Friend
Here's a tip you might not think of right away - make sure you have adequate insurance for your car, home, and health. An emergency in any of these areas can cost a shocking amount of money without insurance and can force you to draw from retirement savings in worst case scenarios. Every dollar you take out is interest lost over the life of your retirement savings.
Open An IRA
An IRA or individual retirement account is a great way to save on tax expense when saving for retirement. Bank of America explains a traditional IRA allows tax-deductible contributions up to $6,000 or more, and investment growth is tax-deferred until you start making withdrawals during retirement. A Roth IRA is funded with after-tax contributions and distributions during retirement are free from federal taxes, making Roth IRAs a good choice for high earning individuals.
Pay Down Debt
Even if you achieve a good return from your retirement savings and investments, there's a good chance the interest rate on credit card debt or auto loans is higher. This means some or all the money earned through interest will be paid to debt service - not good! If you have high interest debt, The Balance strongly suggests paying that down before making additional contributions to savings to save on interest charges in the long run.
No matter where you are in your career, it's vitally important to make contributions to your retirement savings so you can live comfortably after your working years. Use these tips and watch your nest egg grow year after year!