People are often misled to believe that it's possible to retire comfortably on Social Security alone. In reality, those benefits probably pay less generously than you'd assume.
Plus, Social Security might have to cut benefits if lawmakers can't find a way to resolve the program's looming solvency issues. If that happens, seniors will become even more reliant on outside income sources to maintain a decent lifestyle.
That's why a good bet is to just assume off the bat that you'll need a healthy level of savings to retire comfortably. But one thing you don't need is to contribute millions to your IRA or 401(k) plan out of pocket. In fact, even if you only manage to pump a total of $100,000 into your retirement plan throughout your career, you can still grow that sum into $1 million or more -- if you follow these three tips.
1. Live below your means
To carve out any amount of money for your savings, you'll need to get into the habit of living below your means. And the sooner you do, the easier it will be to pump money into your retirement plan consistently.
A good way to ensure that you're managing to get money into your IRA or 401(k) is to set up a budget that has you spending less than your total paycheck. In fact, you should actually make a line item in your budget for retirement plan contributions so you stay on track.
2. Start investing at a young age
The sooner you begin investing your money, the more opportunity you'll have to take advantage of compounded returns. As your portfolio gains value from year to year, you'll have a chance to reinvest those gains for added growth in your IRA or 401(k). So it pays to start funding your savings from as young an age as possible.
Of course, a lot of newly minted workers can't carve out money for retirement savings because they're busy paying off educational debt and building emergency funds. But once you're in a stronger place financially, it definitely pays to make IRA or 401(k) contributions a priority.
3. Get aggressive when time is on your side
Investing in stocks carries risk. But so does investing too conservatively.
If you go the latter route, you may find that your nest egg falls short and you end up cash-strapped during retirement. But if you load up on stocks when you're relatively young, you can then enjoy a nice level of growth in your portfolio and shift toward safer investments as retirement nears.
To be clear, when we talk about investing in stocks, that doesn't necessarily mean having to choose individual companies yourself. If that falls outside your comfort zone, you can always load up on broad market index funds, instead.
You should expect to rely on your own savings more so than Social Security to maintain a comfortable retirement lifestyle. If you live below your means, start saving from a young age, and go heavy on stocks, you'll put yourself in a great position to retire with a large-enough nest egg to meet your retirement goals.