Everyone knows you're supposed to save money for
retirement. So how come, according to the Employee Benefit Research Institute,
over half of workers admit they have less than $25,000 in savings? It's difficult to
save money, especially if you're raising a family on anything less than the
median household income, which according to the U.S. Census Bureau is about
$54,000 per year. The truth is that $54,000 doesn't go a long way in today's
economy. After taxes and Social Security are taken out, then you face the costs
of food, energy, housing, insurance, education and healthcare.
For many of us, the only way to save money is to put the
process on automatic pilot, so you don't have to reach into your wallet and pull
out the money yourself. Here are six ways to save for retirement, even if
you can't stand the pain of doing it on your own.
1. Sign up for the 401(k) plan at work. All
it takes is a one-time visit to your human resources department, where you'll
fill out a few forms. Your company will take the money out of your paycheck
automatically before you see it or have a chance to spend it. If your company
matches 401(k) contributions, try your hardest to sign up for at least the
amount the company will match. It's worth the current financial sacrifice to
get the free money later on. Save as much as you can. Try for 5 percent of your
salary, or more if you can afford it. But be realistic. Even if you save 2
percent, you're doing better than most people.
2. Put your tax refund into an
IRA. If you don't work for a large company offering a 401(k) plan,
life gets more difficult. That's what an IRA is for. Set one up and try to fund
it on a regular basis. But even if you do have a 401(k) account, there's no
harm in also starting an IRA to give you an extra financial cushion
in retirement. In addition to whatever regular funding you make, try this
strategy: If you get a bonus, inheritance or tax refund from the IRS, spend half
of it, then put the other half in your IRA.
3. Invest in a low-cost index mutual fund. Unless
you were a math major in college or studied finance under someone like Warren
Buffett, you have no business trying to pick winning stocks from the thousands
of offerings on the stock exchanges. Most people with full-time jobs and
families don't have time for that kind of exacting work. The painless way to
invest – in your 401(k) plan, IRA or any other savings vehicle – is to choose a
broad-based index mutual fund with no up-front fee and low annual expenses
(below 0.5 percent). The bonus: Low-cost index funds are not only the easiest
investments, they are often the best.
4. Buy a house and pay your mortgage. Real
estate got a bad name in the aftermath of the great recession as some
high-flying markets sank as much as 50 percent. But one temporary exception
does not change decades of good results. A time-tested method for most of us to
build capital is to buy a home, live in it for many years, pay our mortgage faithfully
and then eventually sell it for a tax-advantaged profit.
5. Pay off your loans. A
sure way to torpedo your retirement is to carry too much debt, which almost
always costs more than what you can earn on your savings. Pay off credit card
debt first, then any other consumer debt, including education loans, unless you
have some kind of preferred rate (like a promotional auto loan) that only costs
1 or 2 percent a year. Finally, if all your other debts are paid, and your
retirement plans are fully funded, you can start making extra payments to
satisfy your mortgage early.
6. Hire an accountant to do your taxes. Theoretically,
we shouldn't have to pay an expert just to fulfill this mandatory duty of
citizenship. But the fact is, for most people the world of finance has become
so complicated that hiring someone to do your taxes will probably
save you money in the long run. It will certainly save you the irritation of
figuring out the tax forms, and might lower your stress levels to the point
where you'll live long enough to enjoy the retirement savings you've been
accumulating over the years.
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