Your retirement is likely the largest financial goal you'll face in your life. Building a nest egg to cover it can take decades, which, on the surface, can seem like quite a slog.
Still, saving for your future doesn't have to be difficult. Indeed, the simpler you make the process, the more likely you are to be able to keep on saving long enough to have a decent shot of reaching your retirement goals.
That's why I think these retirement savings tips will likely help make you richer by the time you retire. They're designed to make saving for retirement straightforward and simple, making it easier to keep yourself on track to reach your goals.
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1. Make it automatic
Your 401(k) or similar employer-sponsored retirement plan is one of the most powerful tools at your disposal when it comes to saving for your future. There are several reasons for this, and the fact that your contributions come directly out of your paycheck is one of the strongest.
Because your 401(k) gets directly funded from your paycheck, once you set it up, you are automatically investing for your future every time you get paid. You don't have to worry about remembering to put money aside, about being tempted to spend rather than invest, or about whether now is really the perfect time to invest.
Instead, you're simply dollar-cost averaging into the market with every payday. That's an incredibly strong, time-tested approach to build wealth over the long haul.
2. Increase your contributions with every raise
One great hack to increase your investment rate is to divert half of each raise toward your savings and investments. That way, you'll still be able to enjoy some of the benefits from your hard work now, while setting yourself up for an even stronger future.
After all, if you were able to make ends meet on your paycheck before your raise, you should be able to make ends meet on an even bigger paycheck after one. Of course, the bigger the paycheck, the more the temptation is to spend from it. That's why it's important to boost those contributions as soon as you know a raise is coming -- so you can sock away some of it before that temptation gets the best of you.
3. Own broad-based stock index funds for the long term
Over the long haul, broad-based index fund investing tends to beat active fund management by Wall Street's best and brightest. The most straightforward reason for this is because that active management costs money. Those fund managers need to beat the market by enough to more than cover their own salaries, benefits, trading costs, and overhead in order to turn in any outperformance to their investors.
That's a high hurdle to cross in any given year, and it gets even harder to do repeatedly. In addition to having to overcome those internal costs, any successful fund tends to attract even more investors. That gives them even more money that they have to put to work effectively, which can get hard to do, as the bigger a fund gets, the more its actions tend to move the market. The more you are the market mover, the harder it gets to beat that market.
Whatever the reasons, the net result is that index investing is simple, low-cost, available to ordinary investors, and tends to beat the primary alternative over time.
4. Take advantage of any free money you can get
In addition to the automatic nature of 401(k) investing directly from your paycheck, many employers offer matches in their 401(k) plans. That means the first investment you should make is one that qualifies you for the highest possible match.
While matches vary by employer, a common formula is 50% of your contribution, up to 6% of your salary. If that's your match and your salary is $50,000, then the first $3,000 you invest would be matched by a $1,500 contribution by your boss. That's 50% more money working on your behalf, simply by choosing to invest it in your 401(k).
Get started now
These four retirement savings tips certainly can help you build wealth over time, but they all need the power of time to truly perform at their peak. Make today the day you start putting them to work, and you just might surprise yourself with how much better off you are in the long term.
