Flip through a magazine or turn on the television and it seems that there's an entire universe of happy, wealthy retirees walking along beaches without a care in the world.
How do you become one of them?
Well, unless you invent some wildly popular software program or hit the jackpot, the road to sandy paradise is likely to be paved on a foundation of common sense, hard work and discipline.
So much for easy answers.
But here's the good news. If you can imagine strolling along that beach, globe-trotting in your 70s or some other definition of a perfect retirement, you're halfway there. So, what is it that you want to do after work? Take up cooking? Travel? Burn that briefcase? There are likely to be times throughout your career when it's easier not to think about saving for retirement, but having a dream can help you stay motivated.
Check out these surefire ways to help you reach the destination of your dreams.
10 steps to building a nest egg
- Start saving ASAP
- Be consistent
- Sign up for that 401(k)
- Take advantage of other tax-friendly retirement funds
- Don't touch savings
- Control spending
- Save raises and windfalls
- Talk to a pro
- Fall off the wagon? Get back on
1. Start saving ASAPThe numbers speak volumes.
Save a meager $2,000 a year, every year from age 25 to 65 and you'll have $559,562, assuming earnings grow 8 percent annually.
But wait until you're 35 to save that same $2,000 every year and you'd wind up with less than half -- $245,000 -- at age 65, assuming earnings continued at an 8 percent clip.
No wonder financial pros will always tell you the best thing you can do for yourself is to jump on the savings bandwagon as early as possible.
"The 20-somethings who start their 401(k)s 15 or 20 years earlier than their parents will be much better off," says Brian T. Jones, a planner and author of "Getting Started: The Financial Guide for a Younger Generation."
That message holds true even if you're long past your twenties. The more you delay, the more opportunity you squander.
How is that? Well, much of the answer lies in something called the Rule of 72. This refers to a thumbnail estimate of how long it would take for investments to double given the rate of your investments. To understand how this works simply divide 72 by an interest rate and you get the time it takes for money to double. For example, say you had $1,000 that compounded interest at 9 percent a year. Under the Rule of 72, you'd have $2,000 after 8 years. If $1,000 compounded at 6 percent, it would take roughly 12 years to double your money.
The important lesson here is that you want to have as many opportunities during your lifetime for your money to double. Just look at some simple math. If you have $100 that doubles three times you end up with $800. ($200 to $400 to $800). If it doubles one more time, you end up with $1,600. In other words, it's those final years when the doubling really packs a punch.
If your head is swimming, don't panic. The numbers are just meant to show you why procrastination is such a costly and life-altering mistake. So, scrape together what you can and start saving today. You'll add more in the future. And chances are, once you're off and running, you'll wonder what took you so long to begin.