It will likely take decades to build a nest egg that will take you from $0 to a comfortable retirement. That makes it very important to follow an investment strategy you can easily keep up with over the long haul. After all, life happens, and the simpler it is to stay on track with your retirement investing, the more likely you'll be able to stick with it while working through the other priorities you have.
With that in mind, these four no-brainer retirement savings hacks are ones you'll thank yourself for later. By making it straightforward and automated to invest in a way that you don't have to monitor closely, you can make it more likely that as long as you can continue investing, you will continue investing.
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No. 1: Contribute to your 401(k)
Perhaps the most important feature of your 401(k) (or similar employer-sponsored retirement plan) is that investing becomes automatic once you sign up to contribute. Every single paycheck -- unless you reach your maximum contribution early -- you'll be putting money away toward your retirement. Plus, if your employer offers a 401(k) company match, you'll be getting even more money working on your behalf, thanks to putting your boss's money to work with your own.
No. 2: Put those investments toward broad-based stock index funds
While it's quite possible for an individual company's stock to become worthless if the business fails, it would take an absolute economic catastrophe for a broad-based index to end up at zero. Plus, over the long haul, index funds tend to beat Wall Street's best and brightest when it comes to overall investing returns. That combination makes stock index-focused investing a great approach for a long-term investing strategy that you want to put as far on autopilot as feasible.
No. 3: Sign up to invest based on a percentage of your salary
Many 401(k) plans offer you the opportunity to invest either a certain dollar amount or a certain percentage of your salary every paycheck. By investing based on a percentage of your salary, every time you get a raise, your contribution will increase as well, automatically translating to faster contributions to your retirement plan -- and with no additional effort on your part. For example, say your salary is $4,000 per month and you invest 10% of it, $400, every month. If you get a raise to $4,200 per month, 10% of your salary will increase to $420.
No. 4: Agree to make escalating contributions over time
Another feature that many 401(k) plans offer is automatically escalating contributions. If you sign up for that feature, you set up a schedule to increase your contributions over time. For instance, you might start at 10% of your salary with an increase of 1% per year until you hit 15%.
This strategy is useful if you know that you want to contribute more than you can right now but expect additional breathing room in your budget in the future. For instance, if you're just starting out in your career and anticipate decent raises as you prove yourself in your chosen field, that could translate directly into more money available to invest.
Make it automatic to boost your chances for a financially stronger future
What all four of these retirement savings hacks have in common is that they're designed to help you build a decent nest egg without having to manage your investments daily. If all you do is check in every year or so to make sure your plan still makes sense and to make adjustments if needed, that could get you most of the way through the work of building your nest egg.
Of course, once you get close to retirement and need to think about tapping that nest egg to cover your costs, you will want to shift your strategy. By the time you get there, though, after decades of automatic investing, you'll thank yourself for your foresight to take advantage of automatic investing opportunities along the way.
Still, this is a strategy where the more time you have on your side, the better your odds of building a substantial nest egg for your retirement. You'll never again have more time than you do right now before you retire, so get started now.
