Learn to successfully save for retirement

For many of the country’s workers, retirement seems as far off as another galaxy. But even for those who just entered the workforce, it’s never too early to start saving for retirement, regardless of how far off it might seem.

When talk of retirement saving comes up, it can often be very confusing. Advice seemingly comes from every direction, and much of that advice can differ greatly depending on the source. As differing as advice can be, there are a few time-tested truths that go along with saving for retirement.

• Start saving early—The old saying goes, “It’s never too late to start saving.” While that’s certainly true, it’s also never too early to start saving.

Even freshly minted college graduates should begin saving for retirement the moment they enter the workforce. Why? A key to retirement savings is learning to make your money work for you.

This doesn’t require the investment savvy of a Wall Street veteran, either. Instead, anyone who starts saving early is allowing their money the time to grow, even if it’s just an interest-bearing savings account.

The earlier you start saving, the more time you’re giving your money to grow. If you save enough, the interest you earn will begin to compound, meaning you’re earning interest on interest.

• Utilize your company’s 401(k) plan—If you’re lucky, you work for a company that will match your contributions to your 401(k) (though most cap at what they’ll match at a certain dollar amount or percentage).

Even if your company doesn’t match contributions, 401(k) plans are a great way to start saving for retirement, regardless of your age. The money you put into a 401(k) is taken out before taxes, essentially making it an automatic tax deduction.

The growth on your 401(k) earnings is also tax-deferred, meaning you won’t pay taxes on that money until it’s withdrawn.

Standard 401(k) advisors suggest contributing six percent of income to your account, which isn’t too large an amount to miss but large enough to appreciate as it grows and gains interest over time.

• Allocate assets well—Putting all of your eggs in one basket is a dangerous idea. Granted, if you have all your money invested in one area and that area experiences massive growth, you’ll be justly rewarded. However, the chances of that happening are slim to none, emphasizing the importance of asset allocation.

Divide your investment portfolio so a big loss doesn’t equal disaster for your retirement.

• Consider the advantages offered by IRAs—Similar to a 401(k), an IRA provides investors advantageous tax breaks.

When choosing an IRA, you’ll have the choice between a Roth IRA or a traditional IRA.

A Roth IRA doesn’t offer tax-deductible contributions, but that also means withdrawals aren’t taxed.

With a traditional IRA, investment gains are only taxed when withdrawals are made.

• Stocks help savings grow—Over long periods of time, successful stocks have proven to provide the best chance of getting high returns. With the right stocks, savings will grow faster than inflation, increasing the value of your savings along the way.

While it’s always best to seek advice whenever investing for retirement, it’s also good to know that, as confusing as investing can seem at times, there are some tried and true methods to ensuring your money will work for you.

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2013-05-09 digital edition

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