How to Painlessly Save for Retirement

“Save as much as you can” is a common recommendation for how much to save for retirement. While it is good advice, it could be better. Instead of an arbitrary “as much as possible” amount, your retirement savings goal should be clear and realistic. Having a firm goal allows you to create a plan, increasing your chance of actually saving.

How much do I need?

But, what should your goal be? Most experts recommend you save 10-15% of your income, beginning in your 20s. Overtime, this amount will grow due to compounding. When you retire, you’ll have a lot more than simply the sum of all of your deposits.

Let’s say you are 28 and make $40,000 per year. Your goal is to save 15% of your pretax income for retirement. This means you should sock away $6,000 this year. That may seem like a hefty amount to save.

The key is to break it down and budget for it. Since there are 12 months in a year, think of it as $500 per month. This sound much more reasonable. It may still sound like a lot though, so we need to plan for it.

How do I actually save?

If you contribute to a 401(k), you can have this money taken out before you ever even see it. Set your contributions. If you need help doing this, your Human Resources department is the one to talk to. Then plan your budget for what’s left. Whatever is left from your paycheck, is what’s yours to spend. Your retirement savings are taken care of. Just create your household budget based on your paycheck after your contributions. Overtime, you won’t even think of the money as missing.

What if I don’t have a 401(k)?

If you don’t have a 401(k), you have some other options. A common one, which we’ll use in our example is a Roth IRA. With this type of account, you’ll need to make the contributions yourself. You can still set up a similar system. Let’s say you get paid bi-weekly. If you want to save $500 per month, you just need to set aside $250 per paycheck. Many institutions will even allow you to auto-deposit this into your account. Be sure to stash this money before you spend anything else. Setting it to deposit a day or two after pay day is helpful. When you create your budget, only budget for the amount you have left after your retirement contributions. You’ll be more likely to actually stick to your savings goals.

These amounts can all be changed to account for your own situation. Don’t feel like you have a savings quota. Find the amount that you need and plan accordingly. Saving for retirement can seem complicated and like a far off goal. However, it is something you need to save for now. If you set up clear, easy to follow systems, you’ll be well on your way to enjoying your future nest egg.