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Increase your savings rate slowly

By Paula Pant · Bankrate.com
Monday, May 13, 2013
Posted: 5 pm ET

Almost half of all Americans are saving nothing for retirement, according to a 2012 survey by LIMRA, a research and consulting organization.

That's right, nothing. Zero. Zilch. Nada.

That's terrifying, given that many working Americans won't receive an employer pension, either. That means they'll need to rely on their retirement portfolio plus Social Security income to stay afloat.

LIMRA's results come from a survey of 2,697 Americans.

The survey found that Americans ages 18 to 34 are the least likely to save for retirement. That's particularly disheartening news, because it means many people in Generation Y are forgoing the benefit of compounding interest.

But what if you find it tough to save? Following are some recommendations.

Start small, and watch it grow

Start by saving just 1 percent of your income. That amount is so small you won't even miss it. You might make some minor lifestyle adjustments -- maybe you stop buying orange juice, or you think twice about driving to a location when you could walk.

Settle into this new lifestyle for a month or two. Then scale up your contribution to 2 percent of your income. You might notice a small change in lifestyle, but it won't be anything too big or shocking. Maybe you reduce the minutes on your cellphone plan, or cut your cable. Perhaps you get $9 haircuts instead of $45 haircuts.

Wait for another month or two, and then scale up to a 3 percent savings rate. Again, the relative adjustment -- compared to how you lived the previous month -- will be small and insignificant. You'll have plenty of time to adjust.

Continue at this pace. If you notch up your savings rate every two months, you'll save 6 percent of your income within a year. After two years, you'll be saving 12 percent of your income toward retirement. That's a great savings rate.

Earmark the savings for your 401(k) account. If your company matches your contributions, you'll reach your savings goal even faster.

Best of all, you won't feel the sudden shock of missing 12 percent from your paycheck. The adjustment will be so gradual that your new lifestyle will become second nature.

Paula Pant blogs at AffordAnything.com about creating wealth and living life on your own terms. She's traveled to nearly 30 countries, owns five rental units and works for herself. Follow Paula on Twitter @AffordAnything.

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