1. Join your retirement plan at work. It's
the easiest way to save because money is automatically deducted from
your paycheck, he says. If your employer doesn't offer a retirement
plan, if you're not eligible to participate in it or if you're already
contributing the pre-tax maximum and can afford to save even more, then
contribute to an IRA.
2. Start small. If you're not contributing
anything to a retirement plan, start by contributing 1% of your pay. If
the 1% contribution hurts, then stay at that level until it doesn't hurt
anymore, he says. If it doesn't hurt, then increase your contribution
by another 1%. Do that until it hurts.
A 1% contribution may be less painful than you think. Say you make
$44,259 a year. If you're paid twice a month, that's $1,844 per
paycheck. If you contribute $18.44 from it, you lower your taxes by
about $5, assuming you're in the 25% tax bracket, meaning your paycheck
only has to drop by $13. That's about a dollar a day.
3. Start even smaller. If even 1% sounds like too much money
, make it $10 a paycheck. Then increase by $10 increments until it hurts.
4. Save half your next raise. If you can't
contribute anything now, wait until your next pay raise. When you get
it, put half your raise into the retirement
plan. Your paycheck will
still go up some, and your contribution will be completely painless.
5. Don't miss out on company
incentives. Most
employers that offer retirement plans give incentives for you to
contribute some of your pay to your plan. Many add an amount
equal to 3%
of your pay.
6. Find a new job. If your employer
doesn't offer
matching contributions, find a job with an employer that does. Matching
contributions can really add up.
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 a long-term perspective. You have
to create a diversified mix of mutual funds that invest in stocks,
bonds, real estate, foreign securities and government securities.
You can keep your money entirely invested in stock funds provided
you understand the risks and you plan to leave your money invested in
stock funds for at least five years, preferably longer, Edelman says.
These two criteria are crucial for your decision to leave money invested
in stock funds.