Saving money seems like a simple math exercise on paper, but it often comes down to self-discipline and motivation than simple arithmetic. Saving money definitely has its benefits for people who are soon to retire, but they still struggle to do it effectively.
Perhaps if people knew just how easy saving could be by implementing some simple strategies, it could provide a lot more of an incentive to save. Here are four pro tips that everyone should know about to prepare for retirement.
1. The power of compound interest
Albert Einstein once joked that the most powerful force in the universe is compound interest. There is some wisdom in his humor because exponential growth can blow up to unbelievable levels much quicker than most people expect. For example, if you started with one cent and doubled your money every day, by day 30 you would have over a billion dollars.
Of course, you won’t ever have 100% return compounded daily, but let’s look at a real-world example. If you were to set aside $1,000 each month for 10 years at a 7% annual growth rate, you would have over $1.4 million after forty years. On the other hand, if you were to start later, your savings after 10 years would only be $375,000. The moral of the story is to start saving early. Compound interest becomes increasingly powerful as the years go by.
2. Retirement savings move with you
Even though you’re likely to change careers at some point in your life, your 401(k) can follow you on your life journey. The funds in your 401(k) can be rolled over into your next employment package. You could also opt to transfer the funds into an IRA.
3. Some employers offer “free money”
Some employers will match your retirement savings dollar for dollar in order to encourage investing. This generates higher deductibles for the company and doubles the employee’s retirement savings. If you’re lucky enough to have this opportunity, there’s no reason to pass it up.
4. Retirement savings tax advantages
One of the few types of assets that you can have tax-free is retirement funds if they are growing in a 401(k) or similar type of plan. It’s even possible to withdraw from these plans in some cases without penalties, but you have to pay close attention to the details on those transactions.
With these easy solutions, you can set up a great life for yourself when you’re ready to retire from the daily grind. It pays to plan ahead in all of life’s endeavors.