Start saving for retirement now

Just starting out? Nows the time to create a solid plan for investing and saving.

WHAT YOU NEED TO KNOW

Savings goal at age 30: 0.6 x your incom
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Biggest cash drain: Student loans and other deb

Biggest challenge: Overcoming fear of investin

Biggest opportunity: Lots of time for your money to compound

TIPS<br />:

1. Be cou rageous. Nearly 40% of Gen Y-ers say theyll never feel okay investing in stocks, MFS Investment Management reports. Take note: Since 1926, a portfolio mostly in stocks has never lost money in any 20-year period while averaging gains of more than 10.8% a year, vs. 4% for bonds.

Get an age-appropriate mix with the target-date fund in your 401(k) or MONEY 70 picks Vanguard Target Retirement 2050 VANGUARD TARGET RETIREMT 2050 FD VFIFX -0.6% or T. Rowe Price Retirement 2050 T. ROWE PRICE RETIREMENT 2050 TRRMX 1.1% .

2. Go for a Roth 401(k). The Roth advantage: You save with after-tax dollars, so, unlike a regular 401(k), you wont pay income taxes on withdrawals. Thats a good deal if youll be in a higher tax bracket at retirement, as is the case for many young investors.

Four in 10 large plans now offer a Roth option, Aon Hewitt says. To hedge your bet on future tax rates, split your contributions between a Roth and a pretax 401(k).

3. Dont cash out. More than half of workers in their twenties who leave a job do not roll their 401(k) into an IRA or their new employers plan, says Aon Hewitt. Bad move: On a $10,000 balance, you could be left with just $7,000 after taxes and penalties. If, instead, you keep that money growing at, say, 6% a year, youll have an extra $100,000 or so by the time you retire.

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Get smarter about your money

13. Buddy up. A new study from Columbia, Harvard, and Chilean researchers found that when peers monitored one anothers savings progress, average balances doubled.

PeerPressure, a free iPhone app, makes it easy to create goals and share progress with your friends via social networks and e-mail.

1 4 . Sweat the small stuff. If you carry multiple credit card balances, youll save the most money by paying off your highest-rate plastic first, right? Wrong.

Two Northwestern University professors have found that people who focus on their smallest debts before tackling bigger, higher-rate loans are more successful at erasing debt. The psychological boost from eliminating a loan entirely gives you the mojo to keep debt paydown going.

1 5 . Bookmark this! The more you know about personal finance, the more youre likely to save, research shows.

Two online courses can help: Fundamentals of Personal Financial Planning from the University of California at Irvine (ocw.uci.edu/courses/course.aspx) and Khan Academys personal finance class (bettermoneyhabits.com).

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Get with the program

Your employers retirement savings plan is a wealth builders best friend. To make the most of the relationship:

1 6 . Sign up (Duh). Roughly a third of eligible employees ages 25 to 34 dont save in their 401(k), Vanguard says. Dont be one of them. All else being equal, 10 years of saving starting at 25 trumps 30 years of contributions starting at 35.

1 7 . Escalate automatically. In half of large company 401(k) plans, you can elect to automatically boost your contribution each year, typically by one percentage point. Research by Shlomo Benartzi at UCLA and Richard Thaler at the University of Chicago shows that workers who automate end up saving a lot more.

18. Go beyond the limits. Plans often cap auto-escalation at the company match (typically 6%). Thats not enough. Once you hit that limit, keep boosting your percentage each year timing it to your raise makes it painless until you hit the contribution maximum.

THE POWER OF AN EARLY START

How much youd have at 65 if you save $5,000 a year from ages:

25 to 35: $602,100

35 to 65: $540,700

25 to 65: $1.1 Million

Note: Assumes 7% average annual returns. Source: J.P. Morgan Asset Management