Rules for a Wealthy Retirement

Retirement. You have to think about it sometime, and if you want to live out your golden years as the bon vivant you always imagined you’d be, time is of the essence. Indeed, getting started early is the best thing you can do to ensure a wealthy retirement and, for that reason, it appears pretty high on this list. But there’s more than one way to skin a cat and, by sticking to as many of the Rules of a Wealthy Retirement below, you can better your chances of decades of abundance once you’ve clocked out for the last time.

1. Think Of A Number

Set a target amount for your nest egg ASAP. From there, you can work back and see how much financial reshuffling you must do to get your house in order. The important thing here is to take the guesswork out of how much you’ll ultimately end up with. That way, there are no nasty surprises. You can accelerate your savings rate and pave the way for a wealthy retirement.

2. Start Early

Getting a jump on retirement savings is just about the best piece of advice there is. The longer you have before clocking out for good, the less you’ll have to sock away. For example, assuming an annual return of 7% after fees, you’d have $1 million in your retirement fund at age 65 if you saved $4,830 annually starting at the age of 25. If you wait until you’re 40 to save for retirement, you’ll have to stash away more than $15,000 per year to get the same result.

3. But If You Didn’t, All’s Not Lost

Young folks aren’t exactly psyched to throw their hard-earned cash at a secure dotage. That fact isn’t lost on Uncle Sam. The U.S. government encourages workers 50 and older to save more than younger employees by offering catch-up contributions for retirement plans. It’s a chance for johnny-save-latelies to get back on track to a secure retirement. Look into it.

4. Bet On Wall Street…No Really!

Look, you need an annualized return of 7-8% to win at retirement and no other investment — yes, including real estate — will earn enough to get you where you need to be. For example, aside from a 16-year period between 1990 and 2006, the market has been a better long-term savings strategy than real estate. Like real estate, the market is subject to booms and busts, but when all’s said and done, stocks produce greater returns. You have to think long term. Don’t worry about the never-ending financial and economic issues that move the market every day.

5. Invent Your Future With A Pro

Meet with a financial planner who can build an investment strategy to generate dividends that can’t be matched by a simple savings or money market account.

6. Don’t Rely On Social Security

If you’re in your 30s — or even your 20s — chances are that Social Security will still be there for you to take advantage of. However, it’s important not to overestimate what it’ll amount to by then. It certainly won’t be enough to make you wealthy in retirement. According to the Social Security Administration, at the beginning of 2015, a monthly retirement check was only $1,328. Think of Social Security as a secondary source of income that can make up for shortfalls in your savings — not an amount large enough to depend upon to keep you in retirement.

7. Find The Right Balance Of Safety And Growth

Chances are that your 401(k) portfolio probably won’t outperform the stock market year after year. In fact, smart savers should simply aim to capture the average growth of the stock market. In Stocks for the Long Run, author Jeremy Siegel’s research showed that for the period between 1926 and 2006, stocks produced an average real return of 6.8%. “Real return” means return after inflation. Before factoring inflation, stocks returned about 10% per year. Once you start to accumulate funds, protect it with a broad investment strategy that includes stocks, bonds, and cash.

8. Ratchet Up What You Save

Saving between 10 and 15 percent of your yearly income for retirement is a good idea. If you’re getting a late start, you may need to do a little better. Challenge yourself to stash 20% of your take-home pay. Rising to the occasion may be less painful than you think.

9. Take Care Of Consumer Debt Once And For All

Get out of the debt quagmire by paying off your highest-interest balances. As each card gets zeroed out, use the freed-up cash to accelerate your payoff of remaining cards. While you’re doing this, commit to not spending more in a month than you can afford, so you don’t accumulate new debt. Never settle for making minimum payments on credit cards — that makes compound interest work against you instead of for you.

10. Empty Nest? Full 401k!

Kids are pricey. Once the kids leave home, take advantage of your newfound ability to stash money for retirement. “Usually people don’t have a lot of money when the children are in school,” says Harold Anderson, a certified financial planner and president of Parkshore Wealth Management in Roseville, Calif. “You usually find that the period of time in your 50s and your mid-60s is when you’re really putting away a lot of money.”

11. Remember Your ABCs: Always Be Cost-Cutting

What’s a couple dollars here and a couple dollars there, you may think as you thoughtlessly buy cheap conveniences on Amazon. You’ll be shocked to discover that $5 saved at age 40 can compound to more than $1,000 by the time you’re in your 80s. Small differences in spending today can make a big difference in your retirement savings tomorrow.

12. Put yourself first

To help others, we must first help ourselves. It sounds harsh, but this means putting retirement savings before other monetary responsibilities, even your kids’ college tuition. Why? Well, as fiendishly expensive as college has become, your kids have far more options to pay for their education (scholarships, loans, work-study) than you do in paying for your retirement. So you do you, then help them.

13. Get A Raise, Then Ignore It

Generally, the more money people earn, the more they spend. That usually means folks will get a better car and a nicer home with nicer things to put in it, but that doesn’t dramatically improve their financial security. Smart savers control spending by automatically depositing all raises and bonuses directly into savings accounts, where they can earn more income.

14. Select Low-Cost Investments

Fees incurred through your 401(k) plan don’t sound like much, but over time, they can dramatically slow the growth rate of your money. Assuming a 7 percent annual return and fees and expenses of 0.5 percent, a 401(k) contribution of about $7,795 per year over 35 years will get you to $1 million. But if your fees are 1 percent higher (1.5 percent total), you’ll need to save $1,895 extra per year to make up for them.

15. Make Your Contributions Non-Negotiable

If you set up an automatic payment to your retirement fund, you’ll be taking a huge step toward accumulating your pile, and you’ll feel less pain in the process. It’s a little bit of the “out of sight, out of mind” psychology: You won’t miss it if you never see it, and the slightly reduced pay will be offset by the great feeling of knowing your retirement savings are headed in the right direction.