How to Save Enough Money for Retirement: 12 Crucial Steps

How to Save Enough Money for Retirement

In this article I am going to share my must-know tips for how to save enough money for retirement.

For those who are not used to saving a significant portion of their income, the prospect of saving enough money to retire in comfort can be daunting. With so many bills and expenses related to just today’s spending and financial needs, it’s stressful to have to think about tomorrow’s bills and expenses on top of that.

Because the financial realities of today can so easily consume all of our paychecks, saving for the distant future often seems like an insurmountable task. It’s hard to know where to start and often difficult even when we do know to take the first steps to make lasting changes that make saving for retirement a reality.

But there is no retirement fairy godmother. Social security was never meant to provide on its own enough money for individuals to retire in comfort. And your children will likely have enough of their own financial obligations that they won’t be able to offer much assistance.

So that means that saving for retirement is solely up to you. But that is a wonderful thing, because that means you control your destiny—and being in control of your destiny is an awesome place to be. Following the steps outlined below will help ensure that you have a comfortable retirement, no matter your age or where you are today with your retirement saving.

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How to Save Enough Money for Retirement: 12 Best Tips

Learn 12 must-know tips for how to save enough money for retirement!

1. Start investing for retirement as soon as possible—but get your financial house in order first.

Because of the amazing power of compound interest, you should start investing for retirement as soon as you possibly can. There is a saying among financial experts that the best time to start investing was 20 years ago. But the next best time to start investing is today. So work to begin investing for retirement as quickly as possible. But build up at least a small emergency fund and pay off as much nonmortgage debt as possible first (see the next step to learn why).

2. Build an emergency fund of at least $1,000 and pay off your nonmortgage debt.

I know this is an article about saving for retirement, but the simple truth is that, as much as I want you to start saving for retirement as quickly as possible to take advantage of the amazing power of compound interest, you need to have a strong financial foundation before you begin saving for retirement. If you don’t have at least a small emergency fund and you have the burden of debt and you begin saving for retirement anyway, when financial challenges—such as a layoff or medical emergency or major home or car repair—come your way, as they eventually will, there’s a very good chance that you will tap into your retirement accounts in order to access the money you need.

That’s why it’s important that you pay off your nonmortgage debt before you start saving for retirement and that you have a starter emergency fund of at least $1,000 in a simple bank account. (We use Capital One 360 for our emergency fund because it allows us to easily set up separate savings accounts for our various savings goals and because the interest rate is much higher than our interest rate at our local credit union.)

I know some of you may feel, once you’ve decided that you are ready to save for retirement, that you don’t want to give up the company match that your employer offers by waiting to save up an emergency fund and pay off your nonmortgage debt. But if you are willing to roll up your sleeves and get out of debt very quickly (ideally, within two years at the most), then the extra money you will have to throw at your debt will be worth the short-term tradeoff of not saving for retirement right away or of pausing your retirement contributions.

Once you have paid off all of your nonmortgage debt—again, in order to not feel the need to fall back on pulling money from your retirement accounts when financial challenges arise—you should start working toward building up a fully funded emergency fund of at least three to six months’ worth of expenses. If you will wait just a little longer on making contributions to your retirement account until you have at least three months’ worth of expenses saved, then you can focus your financial energy on that goal and work to save up that three months’ worth of expenses as fast as possible.

And then once you have at least three months’ worth of expenses saved, you can turn your full attention and intensity to saving for retirement.

Check out these related articles:
How to Become a Millionaire by Investing Just $200 a Month!
How to Become a Millionaire in 20 Years—Starting from Nothing!
How to Start Investing for Retirement: 5 Simple Step
How to Save Enough Money to Fully Fund Your Roth IRA
The Amazing Power of Compound Interest
IRA or 401(k): Which Is Better?

3. Commit to stay out of debt in order to save enough money for retirement.

Once you have gotten out of nonmortgage debt, it’s important that you commit to stay out of consumer debt. Getting and staying out of debt really are two of the best things you can do to ensure financial prosperity. That is because when you pay off all of your debt, as financial expert Dave Ramsey says, you free up your largest wealth-building tool—your income.

And because investing for retirement is the number one thing that most people will do to build wealth, it’s important to have as much money available as possible to do that. But when your income is largely tied up in making debt payments, it’s not available to help you work toward long-term financial success. By committing to stay out of nonmortgage debt, you keep more of your money available to work toward financial goals like retirement and paying off your mortgage.

4. Create a budget and reduce your expenses where possible.

One benefit of creating a budget so that you know how much money you have coming in and where it is all getting spent is that it will help you avoid going into debt. But beyond that, you should also create a budget, if you are not already using one, so that you will know how much money you have to work with to save for retirement. If your current income and expenses do not allow you to save at least 10 percent of your income (and preferably 15 percent) toward retirement, then work to reduce your expenses.

Some of the areas you can likely cut right away in order to have more room in your budget to save for retirement are to save money on groceries and eating out, transportation, clothing, entertainment, and utilities. You should also look at ways to save money on your housing expenses.

5. Work to increase your income to be able to better reach your retirement goals.

The other important side of the financial equation opposite cutting expenses is to increase your income. There is only so much you can cut to reduce your expenses, (though there is a lot you can do; check out my best tips in the linked article!) but your ability and potential to increase your income is really almost limitless! (And honestly, it’s more interesting and fun to earn more money than spend less money, anyway!)
Sign up below for my free 10-day Earn More Money, Change Your Life Challenge to learn my best tips for how you can start earning more money to reach your financial goals and dreams!

6. Begin to save at least 10 to 15 percent of your income toward retirement.

As quickly as you can, arrange your monthly budget so that you can invest at least 10 percent of your income toward retirement (15 percent if you can).

If you are starting a little late saving for retirement or you want to have a more comfortable retirement given the many years you will likely live after you retire, and as your income increases over the years, you should strive to invest at least 15 percent (and possibly more) of your income toward retirement. To do that, continue to examine and adjust your budget, cutting expenses or increasing your income as needed.

And if you are interested in the possibility of retiring early, then you may want to invest 20 percent or more in retirement, or reduce your living expenses—or both!

Once you begin investing for retirement, I recommend that you sign up for a great free app called Personal Capital in order to track your progress toward reaching your retirement and other financial goals. With Personal Capital, you can see not only all of your bank checking and savings accounts and even your credit cards and other finance accounts, but you can also link your retirement and regular nonretirement brokerage accounts.

This allows you to have a complete, overall picture of your current financial situation. And you can also view your account history to see how your accounts and overall portfolio have done over time. I love this very helpful tool and use it regularly! Sign up for your free Personal Capital account here.

Check out these related articles:
How to Become a Millionaire by Investing Just $200 a Month!
How to Become a Millionaire in 20 Years—Starting from Nothing!
How to Start Investing for Retirement: 5 Simple Step
How to Save Enough Money to Fully Fund Your Roth IRA
The Amazing Power of Compound Interest
IRA or 401(k): Which Is Better?

7. Invest wisely in tax-advantaged retirement accounts such as a traditional 401(k) or Roth 401(k) and traditional or Roth IRAs.

One of the best things you can do to ensure you have more money available when you are ready to retire is to invest the money you put away for retirement in tax-advantaged accounts. That is because federal income taxes take a big bite out of most people’s paychecks—anywhere from 10 percent to roughly 40 percent! If you are a younger worker (or your spouse is) and you make less money now than you likely will live on in retirement, then investing in a Roth 401(k) if available through your employer and also in a Roth IRA is a great way to go. (You can learn more about the differences between traditional retirement accounts and Roth retirement accounts here.)

When it comes to choosing the funds to use to invest for retirement, you should look to good growth stock mutual funds that have been around for at least 5 years (and preferably 10 years or longer) so that you can see how they have performed during that time.

As you consider which mutual funds to invest in for your 401(k) or IRA (read this article to find out whether a 401(k) or Roth IRA might be better for you), important factors to consider are the long-term rate of return, the expense ratio, the type of mutual fund (large cap, small cap, mid cap, and international), and the longevity of the current fund manager. Read more about how to start investing for retirement here.

Tip: If you would like to know the method we use to choose the mutual funds we invest in for our Roth IRA, fill out the fields below, and I’m happy to share the information with you. No strings attached; this is just the kind of information I wish we would have known 15 years ago when we first started to invest.

8. Determine roughly how much you will need to live comfortably when you retire.

To the best of your ability, calculate how much you will need to save overall toward retirement. This number will likely get more accurate as you get closer to retirement age, but you can get a pretty good idea of the amount you should have saved by using this retirement savings calculator (or one like it).

9. Invest automatically to help ensure you save enough money for retirement.

One of the best ways to ensure that you invest the amount that you have planned to every month is by automating your finances as much as possible so that the money is transferred directly from your checking account to your Roth or traditional 401(k) or IRA before you have a chance to spend it on anything else! Many employers even have an automatic system set up where they pull money directly from your paycheck and it gets invested in your retirement account before it even gets to your checking account. This kind of automatic investing will help you keep on track to adequately fund your retirement and reach your retirement goals.

For more information about the power of automating your finances, I recommend the book The Automatic Millionaire by David Bach. It was one of the first personal finance books that I read many years ago, and it is still one of my favorites.

10. Diversify your retirement portfolio to help ensure you have enough money saved for retirement.

Because stocks have historically outperformed bonds and many other kinds of investment options, you should invest in solid stock mutual funds for long-term financial success. Though stocks have performed very well over time, no area of the stock market performs well all of the time, so it is important to have a well-diversified portfolio. The asset allocation that I recommend is investing 25 percent of your designated amount allotted for retirement investing in each of four mutual fund categories: large cap, mid cap, small cap, and international. You can learn more about this asset allocation model here.

11. Regularly evaluate your progress.

Once you begin investing for retirement, though you can put your investing largely on autopilot (and you should!) by taking advantage of automated investing, you should still review your retirement accounts at least quarterly to make sure your funds are performing as expected and to rebalance your investment portfolio as needed so that it stays in line with where you want it to be (see the part about asset allocation in the section just above).

Sign up for the free app Personal Capital to be able to easily track how your investments are doing and also view your account history to see how your accounts and overall portfolio have done over time. I love this very helpful tool! Sign up for your free Personal Capital account here.

12. Work longer.

Assuming your health allows you to do so (and you enjoy what you do for work or are interested in embarking on an encore career), working longer than the typical retirement age of 65 or 67 can go a long way to helping to ensure that you live a comfortable and happy retirement.

 If you have a job where you don’t love what you do, then work on transitioning to a job that you love where you will thrive. Your future financial self will thank you. 🙂

Conclusion

You have many options available to you that can help you invest enough money to be able to have a comfortable retirement. And the sooner you start investing, and the more you are able to sock away, especially early on, the better. In order to reach your retirement goal, you will likely need to both reduce your spending and increase your income.

Remaining appropriately diversified in your investing and regularly evaluating your overall financial situation will help ensure that you achieve your retirement goals and dreams.

Are you ready to get serious about saving for your future? You can find more helpful information about investing for retirement here.

Did you find this article on how to save enough money for retirement helpful? What tips do you have for how to save enough money for retirement? I would love to hear your ideas! Leave a comment and let me know!

Want to Track Your Financial Progress?

Check out the free app Personal Capital, which allows you to track how your investments as well as checking and savings accounts are doing and also view your account history to see how your accounts and overall portfolio have done over time. It’s a great tool! Sign up for your free Personal Capital account here.

Check out these related articles:

How to Start Investing for Retirement: 5 Simple Steps
The Amazing Power of Compound Interest
401(k) or IRA: Which Is Better?

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