Basic, yet essential, retirement strategies

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If you are in your twenties or thirties and you’ve got an income, then it is not too early to start making a retirement plan. Studies have shown that even people who have savings may not be properly preparing for retirement. The rule of thumb is that you need to be able to withdraw 4% of savings per year without running out of money. 

In order to make sure you retire with enough, make sure you are following these simple steps that will maximize your nest egg.

The first thing is the most important – get rid of high interest debt. Compound interest is a powerful force. On the one hand, if you can save $443 per month for 30 years, you will be a millionaire (at 10%). The same exponential results apply to compound debt. Most credit cards have interest over 15%. When a balance keeps compounding over time, this sort of debt can completely disable a savings plan.

The next important strategy is to maximize retirement contributions so you can turn the tables on compound interest and get it working in your favor instead of against. Make sure you look for investments that provide the highest interest rates and best tax advantages. This typically comes in the form of an IRA or 401k account. Recent reports have indicated that a disturbingly high percentage of wage earners do not make the maximum contribution allowed by law to their retirement accounts. Taken in the aggregate, this means that millions worth of retirement savings are being lost for no reason. 

Another piece of advice is to obtain diversification of the types of retirement income you will have. The so-called “three-legged” stool consists of (1) personal savings in the form an IRA or 401k, (2) Social Security income, and (3) a pension plan. Unfortunately, modern conditions do not make this model easily achieved. Significantly, most employers do not offer a pension any more. A possible alternative could be a personal pension plan, which you can learn more about from a qualified financial consultant.

A final instruction may seem obvious, but it is so important that it is worth repeating. Reduce your expenses while increasing your income. Once the savings strategy is in place, while you are still in the prime of your work life, make sure to bring in as much income as you possibly can and then find places to reduce everyday expenses.

Following this path may not be the only path to a successful retirement, but these fundamentals will make the road easier.


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