Saving for Retirement Starts With These 5 Steps

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Don’t make it complicated! Start with step number one, and work your way down. Soon you’ll have a solid retirement savings plan in place.

1. Start Saving!

It may sound silly, but the most important step in saving for retirement is to START SAVING. Open a savings account and put money into it. While this account balance is growing you can take the time to learn how to make your retirement savings plan better.

Initially this savings account will serve as your emergency fund. An emergency fund is a savings account that is liquid and available to you without penalty. You need a minimum of three months worth of living expenses in your emergency fund, so if you lose your job or an auto repair is needed you will not have to use other investments that are specifically for retirement. While you are building up your emergency fund, move on to step #2.

2. Read Personal Finance Books and Magazines

No one will ever care about your money as much as you do. If you want to learn how to save for retirement the right way, read three books on investing and retirement saving. You will also want to subscribe to a credible finance magazine and read the articles for a year.

At first, the language in the articles will not be familiar to you. That is ok. Don’t follow the first advice you read. Just read the articles for a year and after a year it will begin to make sense. Then you’ll be able to figure out how the advice applies to your personal circumstances.

3. Use Tax Favored Retirement Plans

Once you have established a sufficient emergency fund, you’ll want to look for a retirement plan that offers a tax benefit. Check with your employer to see if they offer a company retirement plan like a 401k plan. Many companies will contribute to your retirement plan for you as long as you contribute some. This is referred to as a company match. It is usually advisable to contribute enough so that you get the full amount of any company match.

If your company does not offer a retirement savings plan, you can open an IRA or a ROTH IRA. With an IRA, your contributions are deductible. So if you put $5,000 into an IRA, it would reduce the amount of taxable income for that year by $5,000. With a ROTH IRA, your contributions go in after-tax, but funds grow tax free.

4. Play Around with a Retirement Calculator to See How Much to Save

Online retirement calculators help you see how much you will need to save for retirement to retire by a certain age. Spend time putting numbers into these calculators.

If you are just starting to save for retirement, or getting a late start, don’t get discouraged. Go back to rule #1, and just keep saving! In addition, consider ways you can earn more income so that you can increase your retirement savings. If you need some assistance getting a plan together, consider using the services of a no commission retirement planner .

5. Use Low Cost Mutual Funds

You will have to decide what type of investments to use inside your company retirement plan or IRA accounts. If you are starting out, look for a balanced fund with low fees. Research has shown that the best predictor of which funds will do the best is the funds with the lowest fees. Index funds are one form of low fees mutual fund that you should check out.

You will also want to understand what to expect from your investments by learning about investment risk.

Be patient as you learn. Take a year to go through each of the five steps above, read all the articles I’ve linked to, and you will know how to save for retirement.