How to Build a Fat Retirement Nest Egg

Cultivate and Grow Your Nest Egg

Ahhhhhh…retirement.

The day we always dream about when we are stuck at our job. The day we think will never arrive. The day we look back, and set sail on fabulous vacations, sleep in every day, or go play golf on lazy afternoons if we want.

The thing is, that day is likely to arrive sooner than you think, but will you be prepared? Or do you just think you will magically have enough saved back to retire on when you can no longer work?

It’s time to stop avoiding your financial future and take control.

When it comes to preparing for the future, one of the most important things we can do is to set up a strong financial foundation.

As with so many things that are necessary in life, however, the process of creating a nice “nest egg” can seem so complicated that many of us just put our heads in the sand and try not to think about where we’re going to be in 20, 30, or even 50 years.

If you have yet to start feathering your own nest to keep you warm in the future, here are some simple methods you can use to get started right now.

1.  Automatic saving. Many banks have gone ahead and taken some of the responsibility out of saving by implementing automatic savings plans.  When you’re enrolled in this type of plan, a preset amount of money will automatically be deducted from your designated account and put into a special savings account.

For example, if you get paid on the first, you might designate an automatic withdrawal to come out on the second of each month.  Because the money is taken directly out of your account without any help from you, it almost seems as if it never existed in the first place.  As they say, “out of sight, out of mind.”

You can certainly take this one step further, as well, but putting that money to work for you.  Instead of relying on your bank’s piddly one percent interest rate on your savings account, why not have the money automatically invested?  Your financial advisor can set this up quite easily, and you’ll probably never even notice the money was missing. Give ING a shot with their Orange Savings Account. I highly recommend it.

2.  Keep separate accounts. You may have noticed that the first suggestion talked about moving money from one account to another.  This is extremely important in order to keep yourself on track with your savings plan.  If your savings is mixed in with your checking or other household account, it’s just too easy to spend.  You may think that you’ll just “borrow” a little from savings and replace it next month.  Unfortunately, this plan is rarely successful, and the result is no savings.

It’s also not a bad idea to make your savings a little harder to get to so you’re not tempted to do that borrowing thing.  One simple method is not to keep your savings account debit card in your purse or wallet.  You may even go so far as to have a joint account that requires multiple signatures for a withdrawal.  You might also try investing your savings so that it takes a few days and some paperwork to sell off a mutual fund, etc. and gain access to your money.  If it’s not immediately available, you’re more likely to leave it alone.

3. Retirement accounts. There are various retirement account options available, with the 401(k) and IRA/ROTH IRA being the most common.  If you work for a company that offers a matching program for their employees’ 401(k) plans, then you can actually get some free money.  If not, an IRA (or “independent retirement account”) can be set up through your bank and will allow you a place to tuck away a few thousand dollars a year, as well as to earn some interest. I personally recommend Vanguard for your retirement needs.

There is a lot of talk lately about whether it’s better to invest pre-tax or post-tax dollars.  You may want to have your financial advisor sit down with you to go over both options, but many are currently suggesting that paying taxes on the money now, rather than when you collect it later on, will net a larger payoff down the road.  There are restrictions, however, on how much you can contribute annually, as well as when you can (and must) start withdrawing the funds.

4. Make windfalls last for years. If you unexpectedly come into some money, think very hard before you rush right out to spend it.  Whether you receive a handsome tax rebate, get a bonus at work, or even put in overtime hours, take at least half of that money (more is better, of course), and add it to your nest egg.

Remember that with the power of compound interest, a $1,000 windfall, invested at the stock market average of 11%, will grow to almost $23,000 in 30 years.  What a way to really make that wedding gift or inheritance even more valuable.

5. Set goals. It’s been proven again and again that humans are motivated by goal setting.  Whether you’re the competitive type who loves to cross the finish line, or you just appreciate the sense of satisfaction that comes from reaching a goal, the overall impact can be amazing.  People simply save more money if they know what they are saving for.  Perhaps your goal is to purchase a comfortable home for you and your family.  Try to figure out just how much you’re striving for (whether it’s the whole total or simply the down payment), and watch as your savings grows to meet that amount.

If you’re saving for retirement, then you might need a financial advisor—or at least some good calculator skills—to determine the total you’d need to save in order to have a monthly “income” that will support you in the retirement lifestyle you plan to have.

6.  “Find” money. One of the biggest reasons that we don’t save for the future is because we feel like we don’t have enough money in the present.  When you’re barely making the mortgage and car payment today, it can be difficult to imagine how you can find extra money to invest or save.

Many of us are able to find a bit of “extra” money, though, if we truly look hard enough.  Simply giving up a small habit now can make a huge difference in the future.  For example, if you are currently spending $3.00 a day on a coffee drink, why not start making your coffee at home, and filter the extra cash right into your savings account?  Some of the easiest ways to cut back are to bring a lunch from home, to quit smoking, and even to carpool or take the bus to work one or more times a week.  Of course, this only works if you remember to transfer the money into your savings account!

7.  Be determined. Saving can be hard. There are so many needs and wants and desires to fulfill right now, that it can be nearly impossible to deny ourselves in the present in order to take care of some unknown future event.  If you’re interested, you can look and see how your family’s expenditures compare with those of the typical American household.  Successfully creating a plump nest egg requires dedication.  Send a signal to yourself and others in your home that you’ve made the commitment by creating a budget—and sticking to it!  Cut back on those things you don’t really need, and incorporate a savings strategy directly into your monthly plan.

Staying true to your budget will probably be difficult at first, but if you’ve followed the other suggestions here, it should become easier.  Have the money automatically deducted from your account and put into savings, investment plan, or retirement fund.  Free up that money by cutting out some of the nonessentials that are sabotaging your future wealth.  Remember to set your goals so you can recognize that you are making progress.  When all is said and done, you will have created a comfortable future without actually having caused yourself that much discomfort in the past.

Do you feel like all this money talk is making you go brain dead or you just feel stupid an clueless? Why not check out The Simple Dollar blog. It is packed with great stuff, be sure to check out the archives on Retirement and more! Or, take a look at Ben Stein’s Six Key Principles of Saving for Retirement. It’s really good.

Bottomline: As with so many things, it’s simply a matter of getting started. Now you have a plan, why not start something today? Time is most likely on your side.