Saving for retirement is simple. All it takes is saving 15 percent of your income starting in your 20s to retire comfortably at age 65. The problem is that simple doesn't mean easy.
Study after study tells us that most Americans are not saving enough for retirement. Many people aren't saving at all. We know that retirement is heading our way, yet we can't seem to translate the simplicity of retirement savings into action.
There are undoubtedly many reasons for our collective inaction. Chief among them is a lack, or a perceived lack, of money. In other words, saving money is hard. Here are some suggestions to help make retirement savings a little less painful:
Make increases automatic. Many 401(k) retirement plans allow for automatic increases in the amount employees contribute. Automatic escalation programs will automatically increase your savings rate each year by a predetermined amount. For some plans, employees are included in the escalation program by default, although this is the exception. For others, employees can elect to participate in the auto escalation program.
Save part of a raise. For those who don't have access to the escalation program, a simple alternative is to increase savings with each pay raise. If you save 100 percent of your pay raise, take-home pay will still rise if the savings goes into a tax-deferred account. Saving less than the full pay raise allows for an increase in retirement savings while further increasing after-tax income at the same time.
Increase savings after debt repayment. It's a great feeling to pay off debt. That's particularly true with credit card debt, which often comes with double-digit interest rates. The problem is that it's easy to spend the extra money that comes with paying off debt without knowing where the money goes. It somehow just vanishes into our monthly budgets. Avoid this disappearing act by increasing retirement contributions by the amount of your former debt payment.
Lower your bills and funnel the savings to retirement. This approach has a double benefit. First, lower the cost of a monthly bill. Then use the savings to increase retirement contributions. It's far easier to reduce the cost of monthly bills than you might think. From getting car insurance quotes each year to rethinking the hundreds of dollars many people spend on cable, Internet and cell phone plans, saving an extra $100 or more each month can go a long way in retirement. There are a variety of painless ways to save money.
Save one-time gifts, bonuses and tax refunds. Periodic windfalls represent a golden opportunity to pad a nest egg. Because this money is typically not included in your monthly budget, it is often spent on wants, not needs. Consider putting at least some of the windfall into a retirement account, such as a deductible or Roth IRA if you qualify.
Rob Berger is an attorney and founder of the popular personal finance and investing blog, doughroller.net. He is also the editor of the Dough Roller Weekly Newsletter, a free newsletter covering all aspects of personal finance and investing.