- 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 will save money for retirement by allocating at least 10% of their gross income 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 continue to save money for retirement when the market declines. 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. The important thing is to start to save money for retirement as early in your working life as possible to give it more time to compound and grow.
- 5). If you have credit card or installment debt, develop a plan to 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 to save 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).
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