According to financial adviser and best-selling author Ric Edelman, to live comfortably in retirement you need to “save until it hurts.” Edelman says that employers, pensions, and even Social Security have become unreliable, so we must save constantly — even if it’s only $10 out of every paycheck. Here are his seven tips for saving for retirement.
1. Join your retirement plan at work. Edelman says this is the easiest way to save because money is automatically deducted from your paycheck. If your employer doesn’t offer a retirement plan, then contribute to an IRA.
2. Start small. If you’re not saving at all, start by contributing 1% of your pay. Even if 1% hurts, continue to set it aside until it doesn’t hurt any longer. Then increase your savings by another 1% until it hurts, and so on and so on.
3. Start even smaller. If even 1% sounds like too much, start with $10 a paycheck. Increase this by $10 increments until it hurts.
4. Save half your next raise. If you can’t contribute anything right now, wait until your next raise and save half of it.
5. Don’t miss out on company incentives. Most employers that offer retirement plans give incentive to participate, such as adding an amount equal to 3% of your pay. If your employer is offering you free money, take advantage of it.
6. Find a new job. If your employer doesn’t offer matching contributions and you can find another employer that does, it will be well worth it to consider switching jobs:
Consider: If you contribute $5,000 a year for 40 years, earning 6% annually, you’ll accumulate $773,810 for retirement. If your employer adds to your account with a 3% match, the value of your account will be $232,143 more – giving you a total of slightly more than $1 million.
7. Invest with long-term perspective. Edelman suggests diversifying your mutual funds in stocks, bonds, real estate, foreign securities, and government securities. If you invest in the stock market, he recommends leaving your money invested for at least five years, and preferably longer.