Make a monthly commitment.
The bad news is that it can be hard to conceive taking money out of your paycheck that you won’t see again for decades. The good news is that, once you resolve to make it happen, there are many ways to make this process easy and relatively painless.
Enroll in your employer’s retirement savings plan. Ask about this during your first days on the job and sign up as soon as you qualify (some companies have a waiting period). Delaying beyond that only leaves money on the table that could be sitting in your retirement account, particularly if your employer will match your contribution.
Contribute every month, even if it’s just $5 or $10. Once you’ve settled into the habit, strongly consider implementing an annual-increase additive—increasing your contributions incrementally each year. It can be increments of $5, $10, $50, or $100, whatever you can afford. It may seem like peanuts now, but it adds up significantly over time, by as much as tens of thousands of dollars.
If the potential rewards are not enough to overcome the stress of saying goodbye to that portion of your paycheck, automate a weekly or monthly contribution so that you never have that squeamish feeling of watching your money go somewhere other than your wallet.
The key to this whole process is to start as early as possible in your professional career, which allows you to take advantage of compound interest. The longer you wait, the more you allow weeds to overrun your retirement savings garden.
Monitor your portfolio.
While robust savings are a key component of your retirement fund, they ultimately are meant to supplement other sources of income, such as a pension or investments. The latter are an invaluable tool to create your nest egg, with a healthy mix of bonds, stocks, annuities, and other vehicles such as real estate investment trusts (REITs) and master limited partnerships (MLPs).
Unlike your weekly or monthly savings contributions, investing is not a set-it-and-forget-it project. No matter how safe or ambitious your mix of investment properties may be, evaluate your portfolio’s performance, quarterly if possible. Your plans and priorities can change over time, as can the market or your fund manager, and your portfolio may need tweaking to reflect this new world. Fees and other related expenses can inch upward over time, and you may need to consider moving things around to find the best deal.
Cut back on expenses.
As your savings and investments grow quietly in the background, it’s also crucial to monitor—and temper—your current spending habits so that your nest egg has the best possible opportunity to flourish. There are numerous quick and easy ways to trim the fat:
Consider a cheaper cable package (or even cut the cord).
Use generic medications whenever possible.
Eat out less frequently (and less expensively).
Cut back on those splurge items (vacation, new car, updated kitchen).
Reduce your debt.
Weather the storm.
There will undoubtedly be periods of unrest in the market and your personal finances as you make your way along the path to retirement. During these times, it’s essential to keep an eye on your accounts and portfolio, making any adjustments that are necessary to stay dry during heavy rains.
In addition to these resources, an emergency fund is a necessary feature of any retirement plan. Do yourself a favor and get this done now—put together six months (or more) of immediately accessible living expenses for emergencies such as a health scare, a lost job, or unexpected home or car repairs.
Let the professionals help.
If a retirement plan seems out of reach, or something to be addressed only at tax time, rest assured, it’s not. The sooner you make it a regular part of your yearly financial life, the quicker your money starts working for you. Start now with our retirement calculators.