Saving for retirement will likely be the largest financial goal of your life. If you're like most of us, it will take decades of saving, investing, and compounding to build a sufficient nest egg to comfortably cover your core costs.
As daunting as that may seem on the surface, there are straightforward moves you can make that will help you along the way. These four unstoppable retirement savings hacks could very well make you rich by the time you're retired.
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No. 1: Make it automatic
Perhaps the most powerful hack on this list is also one of the simplest. Sign up to contribute to your 401(k), 403(b), TSP, or whatever equivalent retirement savings plan your employer offers. These types of plans offer many great features for retirement savers.
One of the most potent of those features is the fact that once you sign up, money is automatically taken out of your paycheck to invest on your behalf. Because it comes directly out of your paycheck, once you're used to your net pay level, you'll likely find you don't really miss that money, even as it works hard on your behalf to build your nest egg.
No. 2: Get all the free money you can
While you're signing up for your employer-sponsored retirement plan, check to see if they offer a match. Many companies will contribute their own money to your account based on the amount you sock away yourself.
These matches can add so much value to your overall financial future that investing enough in your plan to get the most you can from your match is typically the first investment you should ever make. Companies are free to set their own match levels, but a typical one is 50% of your contribution amount, up to 6% of your salary. That's like an instant 50% return on your contribution, which is incredibly difficult to get any other way.
No. 3: Buy low-cost, stock-based index funds for your long-term future
Over time, low-cost, passively managed index funds tend to outperform funds managed by Wall Street's best and brightest. That effect is so powerful that Warren Buffett made and won a $1 million bet that index investing would beat a basket of hedge funds over the course of a decade.
The reason for this outperformance is simple: when you own an actively managed fund you're paying for that expert management. Those costs have to be covered from somewhere, and that somewhere is usually the assets of the fund itself. As a result, actively managed funds have to outperform the market by enough to cover their own overhead costs just to be able to match the market's returns.
While it may be possible for some actively managed funds to occasionally outperform the overall market, the math simply doesn't work out for the majority of them to consistently win. As a result, index funds are a great low-cost and easily accessible way for us ordinary people to invest successfully over time.
No. 4: Take less risk with money you need sooner
As awesome as stocks can be at building long-term wealth, they're terrible tools when it comes to storing money you need to spend in the near-term future. That's because stock prices can be volatile, and the shares of even great companies can fall in the short term because of a corporate slip-up or a change in the market's sentiment.
Because of that reality, money you need to spend in the next few years does not belong in stocks. Instead, consider things like CDs, savings accounts, or Treasury or Investment grade bonds that mature just before you need the money. While you're not as likely to get as great long-term returns on those other asset types than you will on stocks, you're also more likely to have the money you need available to you when you need it.
If you're "all in" on stocks, you'll likely find yourself having to sell during a market downturn just to cover a bill. That would mean selling more shares to raise the same number of dollars, which gives you fewer shares left over to compound for your longer-term needs.
Thanks to this reality, investing the money you need in the near term with a lower risk profile than money you need in the long term can actually help you build a bigger nest egg in the long haul.
Get started now
While these four retirement hacks can go a long way toward helping you build a solid nest egg by the time you retire, they still all rely on you having enough time to let the market's compounding work. So make today the day you start putting them in place in order to maximize your chances of actually getting rich by the time you're ready to retire.
