How to earn retirement savings

Saving for retirement is not a game, but it is definitely a strategy you can win at. But it will take proactive action on your part if you want to end up with a comfortable retirement in the end. Here are some of the best strategies to ensure you’re on top when it matters most – after you retire.

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Start as early as possible

The best way to increase your retirement savings is to start as early as possible. Not only does this give you more time to save money, but it also allows compound interest to kick in. The earlier you start saving, the easier it will be to reach your retirement savings goals. Of course, the beginning of your life is the most difficult time to save, because your income is probably the lowest it will ever be. But a look at the math should be enough to motivate you to start as soon as possible.

If you want to reach a $1 million retirement nest egg at age 65 and start at age 35, you’ll need to save about $671 a month, assuming an 8% return on your investments. But if you start at age 20 instead, you’ll only need to invest about $190 per month. It’s an incredible difference, and it significantly eases your monthly burden in the long run. Looking at it another way, if you start saving that same $671 a month at age 20 instead of age 35, you’ll end up with nearly $3.5 million.

Pay yourself first

A key strategy for winning in retirement savings is to “pay yourself first.” This means that you must set aside your investment contributions before paying other obligations, even your bills. If you can learn to live off what you earn after saving, you’ll master the art of saving for retirement. Working the other way – in which you instead contribute what’s left over at the end of the month – usually ends up with a zero contribution amount.

Automate your savings

It can be difficult to consistently stick to a long-term savings and investment plan. Human nature makes it easy to divert money from retirement savings to everything from regular bills and emergencies to discretionary spending like eating out or going to a concert. The best way to circumvent this trend is to automate your investment inflows. When the money automatically comes out of your bank account each month, you’ll never forget to make contributions, and the money will be withdrawn from your account before you can spend it.

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Avoid being too conservative

Some investors view their retirement savings as safe investments that they don’t want to lose. While no one wants to blow their retirement account, investing too conservatively can be just as problematic. If you start saving at age 20 or even 35 or later, you’ll likely still have 30 or more years before you retire, which means your money has time to recover from downturns. During this long period, it pays to invest in higher growth options like stocks instead of low-rewarding options like CDs or treasury bills, which may actually have a negative return after taking into account inflation account.

Maximize your correspondence with the employer

If you work for a company that offers a 401(k) plan, your employer will likely match at least part of your contribution. For example, your company could contribute 100% of the first 5% of your income that you contribute to the plan. It’s the closest you’ll get to free money, and those annual contributions can really boost the value of your long-term retirement. It’s one of the best ways to maximize your retirement savings.

Choose tax-efficient accounts

Whether you can get a tax deduction on your retirement savings contributions — like you can with a 401(k) plan or traditional IRA — or whether you can make tax-free withdrawals from your account in retirement — as you can with a Roth IRA — you can get ahead of the retirement savings game. Any dollar you can save for retirement instead of handing it over to the taxman will help build your long-term nest egg.

Minimize costs

Fees are just a drag on your investment results. In this age of no-fee mutual funds, no-commission trading, and no-fee accounts, there’s no reason to pay more in advisory or management fees than absolutely necessary. Every dollar that comes out of your pocket to pay for services is another dollar that doesn’t go towards your retirement nest egg.

Maximize your income

One of the best ways to increase your retirement savings is to increase your income. This is easier said than done, of course, but these are just simple calculations. If you’re trying to save $500 a month for your retirement, for example, it’s much easier if you earn $5,000 a month instead of $2,000 a month. Always be on the lookout for ways to increase your income, through promotions, side gigs, or even a brand new job.

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This article originally appeared on How to Win at Retirement Savings

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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