2. Be consistentSounds easy and obvious. But 30 percent of workers have never saved a dime for retirement. Don't be among them. Once you make a commitment to save, stick to it, socking away consistently throughout your career.
Says Dick Bellmer, chairman of National Association of Personal Financial Advisors: "I know it seems simplistic to say but if you put 10 percent of your earnings aside, and if you keep doing that over your lifetime and never stop, you'd have plenty."
To be sure, steady saving requires an iron will at times. There's always something vying for your hard-earned dollars, Bellmer says.
"People will tell you 'I couldn't save because I had to buy a new car. There was a wedding.' But there will always be something."
If you're likely to give into pressure -- or temptation, as the case may be -- to spend, switch to auto-pilot and have money automatically deducted from your paycheck to a savings plan.
Don't have enough to open a brokerage account or don't have access to employer-sponsored savings plans? That's OK. Open an account that doesn't have a minimum-balance requirement. Plenty of online banks now offer them, and some brick-and-mortar institutions offer accounts with zero-minimum-balance thresholds, too. As you amass more and that nest egg begins to grow, you can move your money into higher-paying investments.
3. Sign up for that 401(k)Now offered by most large employers, 401(k) plans are becoming the savings vehicle for most workers. And, for good reason. These nifty plans allow individuals to save income before it's taxed (hence the term "pretax" dollars). That lowers the amount you have to pay the IRS. Meanwhile, earnings grow tax-deferred until they're withdrawn.
Best of all? Many employers will match your contributions. But you've got to save enough to trigger this free money. On average, that means saving 6 percent of your salary, according to Profit Sharing/401(k) Council of America, or PSCA.
With so much going for them, the 401(k) should be the first place you save. After all, tax-deferred growth coupled with free matching funds prove a valuable formula for boosting retirement funds. One survey by Employee Benefits Research Institute computed that individuals who saved in a 401(k) plan throughout their careers until age 65 would be able replace between 83 percent up to 103 percent of their preretirement income. Imagine that. No work but potentially the same income. What's not to love?
4. Take advantage of other tax-friendly retirement fundsWhen Putnam Investments recently asked individuals over 61 what they'd do differently to prepare for retirement, "saving more money outside employer retirement plans" ranked top of the list. Nearly half -- 46 percent -- of older individuals who had to return to work within 18 months of retiring said they wish they'd done it. And 38 percent of retirees who stayed out of the work force agreed with that assessment.
Take a cue from those wizened folks-in-the-know and start saving outside of work, too. So-called individual retirement accounts, or IRAs, are a great place to start. IRAs come in different varieties-- the Roth, a deductible IRA and a nondeductible IRA -- but all have tax advantages so you can maximize savings.
Ed Slott, an IRA expert and author of "Your Complete Retirement Planning Road Map," likes the Roth IRA best of all because it allows individuals to stash after-tax money, then never owe taxes on savings again. That includes earnings, too. What's more, unlike other retirement plans, you don't ever have to withdraw Roth funds since there's no lifetime required minimum distributions. That means assets can grow as long as you want. You can even leave them untouched for your heirs.
"Everyone should be doing a Roth IRA," Slott says. "Especially for younger workers -- create a tax-free windfall forever."
Take note: You must meet certain income requirements to fund a Roth. (For singles, eligibility phases out when income falls between $99,000 to $114,000, and for married couples filing a joint tax return it's $156,000 to $166,000 in 2007.) If your earnings disqualify you, consider a deductible or nondeductible IRA, which will let your earnings grow tax-deferred. However, in 2010, you'll be able to convert your deductible or nondeductible IRA into a Roth regardless of your income thanks to a new federal law, says Slott.