It’s easy to understand how a retirement is built — steady saving, prudent investments and time. But so many of us fail at it because we get stuck trying to make just the first moves.
As the saying goes, “A journey of a thousand miles begins with a single step” and that’s true. You really have to set aside the first dollar somewhere, somehow, with the intention of not spending it but instead growing it over years.
Here are five steps you can take to make a plan start off right and, in time, turn into a real retirement that will fund your golden years.
Ready to build a retirement? Here we go:
1. Save at least something, now
You need at least some ready cash for emergencies. Aim for a low, achievable number, say, $50 out of your next paycheck. Stick it into a savings account. Next paycheck do another $50. Pretty soon you’re sitting on $1,000 or more. It won’t take long.
2. Ramp it up automatically
Once you have a month or two in expenses sitting in savings, open an individual retirement account (IRA) at your bank and fund it. Likewise, join your workplace 401(k) if you have one.
If you’re already putting away $50 in cash for your rainy day fund, put the same into your retirement plan. Definitely ask about your company’s matching policy. Try to set aside at least enough to get the full match, and ask if your employer will bank future raises automatically, too.
3. Invest windfalls
Got a tax refund? A gift from a relative? Picked up some fast cash on an odd job? Our natural inclination is to treat found money as a chance to spend. In fact, you should treat is as money that doesn’t exist today. If you invest it, it will compound, turning into much more money down the road.
4. Cut taxes, now and later
Saving into an IRA or 401(k) will lower your taxes today. That’s exactly the kind of “found money” that helps a retirement balance grow more quickly. What you don’t pay in taxes should allow you to save that much more.
If you use a Roth IRA, you get to avoid taxes later, when you take money out. It grows tax-free in the meantime, too. It’s a win-win for retirement savers.
5. Keep investing costs low
It’s hard for people to believe, but using expensive, actively managed mutual funds is a real drag on your retirement. The pitch from the funds is that superior management easily beats the stock market averages.
The data, however, suggests a far different result: After fees, the majority of active funds cannot beat the market averages consistently enough to matter. Meanwhile, those fees cost you real money, now and into the future.
Taking a few small steps toward your retirement may not feel like doing much. But, over time, making the right moves early will help you grow your savings into plenty enough money to retire well and on time.