There are many people looking for the best ways to increase their retirement savings without affecting their current lifestyle or sacrificing comforts.  Although everyone’s financial situation is different, there are some basic tips anyone can follow to increase the amount that they are saving for retirement.  Having a fully funded retirement account will prove invaluable when it is finally time for you to retire and the sooner you start, the better off you will be.

Divert A Specific Percentage Of Earnings To Your Retirement Account

Many employers are making it easier than ever for their employees to fund their retirement accounts by allowing them to divert a specific percentage of their income directly into their retirement accounts on payday.  Any employee enrolled in the company’s retirement plan can fill out a simple form from the Human Resources department designating how much of their income the employee would like to place in their retirement account each pay period, allowing the funds to be automatically deducted from their paycheck and deposited in their retirement account until the employee decides to make a change.  Experts recommend depositing 10% of your income if you just want to cover the basics of retirement, 15% if you would like to enjoy the same quality of life that you do now, and 20% if you would like to be carefree and travel during your retirement years.

Take Advantage Of Matching Contributions

Employer sponsored retirement plans often offer matching contributions for employee deposits into the account.  Some businesses will deposit the same amount into the retirement account that the employee contributes, up to 3% of the employee’s annual salary.  This makes the retirement account grow much more quickly and ensures that the employee will have a significant amount of money saved when they retire.  Not taking advantage of employer matching contributions is like turning down a handful of free cash, so contribute as much as you can up to the matching limit of the employer.

Do Not Access The Funds For Any Reason

Your retirement account will not grow if you are continuously diverting money from the account for other needs.  The money that has been placed into your retirement account should be viewed as untouchable until you have retired and need the money for your living expenses.  Remember, you will need that money to pay your bills in retirement more than you need to take a wonderful vacation this year so save as much as you can to ensure that you will be comfortable in your golden years.

Saving for retirement is difficult so many employers have provided retirement plans to their employees, with the most popular being the 401(k) plan.  A 401(k) plan is a defined-contribution plan, where you make regular contributions into an account that you own and make all of the investment decisions for.  401(k) plans allow people to finance their own retirement and have sole authority over the decisions that will affect their future.

Employer-sponsored 401(k) plans are one of the best places to save for retirement because many employers match your contribution up to a certain amount, giving employees a guaranteed return on their money.  There is also numerous tax benefits associated with these plans, including allowing employees to make their contributions on money that has not yet been taxed, reducing their taxable income by the amount contributed.

Saving in a 401(k) plan is simple.  You decide the amount to contribute, typically 3%-10% of your salary, and the amount to contribute is automatically deducted from your paycheck each pay period.  Contributions are held in your account and are invested in mutual funds chosen for the plan by the company.  Most companies will have a wide selection of different mutual funds to choose from reflecting differing levels of risk and the employee picks which mutual fund to invest the money in their 401(k) account in.

The maximum contribution to a 401(k) plan is $16,500 annually.  Individuals that are 50 or older can contribute an additional $5,500 to their 401(k) plan as a “catch-up contribution.”  The money in your 401(k) account will grow tax-free, but tax penalties will be charged on all withdrawals from the account made before you reach the age of 59 ½.  This penalty fee is generally 10% on top of ordinary income taxes on the money withdrawn.   To avoid the penalties, the money in your 401(k) account should be left alone until you retire.

Retirement plans differ from company to company, but most medium-sized and large companies offer 401(k) plans.  Certain employees of public schools, hospitals, and certain tax-exempt organizations offer their employees 403(b) plans and government employees are offered 457 plans, both of which are very similar to 401(k) plans.  Most companies have phased out their pension plans due the high costs of the plans, so most people need to think about financing their own retirement.

If you’re already doing a 401K, you might plan on adding an IRA to the mix. The Lending Club IRA is a great option. Some are concerned about Lending Club, but there is no Lending Club Scam. Lending Club has a B+ rating from the Better Business Bureau and is regulated by the SEC.

When it comes to saving for retirement, excuses and reasons to put off saving abound.  Maybe we believe that there are more important things to spend our money on or that retirement is so far away that we have plenty of time before we must begin.  Although these justifications may seem reasonable at the time, they can do great damage to your financial future if they prevent you from saving adequately for your retirement years.

Here are the most common reasons for not saving for retirement and how to overcome them.

I Don’t Earn Enough Money!

If you do not earn a big salary, it can be difficult to save for retirement because there are many immediate demands on your income.  Although you may be living paycheck to paycheck, saving even small amounts can significantly improve your financial outlook for your retirement years.  If you can save $20 per month, at the end of the year you will have saved $240 with little change in your quality of life.  As you grow accustomed to putting a small amount into savings each month, gradually increase the amount saved by allocating half the amount of received pay raises or bonuses into the retirement account.

I Need To Save For College First!

Many parents put off saving for their retirement so that they can save for their children’s college education first.  Experts warn against neglecting your retirement savings to fund a college savings plan because there are more opportunities to borrow or gain money for college than there are opportunities to obtain extra money for retirement.  Parents can always help their children pay off a student loan and should focus on ensuring that their retirement years will be secure so they will not be a financial burden on their children later in life.

I Have Plenty Of Time For Saving!

Focusing on a financial goal that is decades away can be very difficult with so many immediate expenses facing us everyday.  Saving for retirement now will reduce the amount of disposable income you have for other purchases, but beginning early means that you can save a lower amount of money over a longer period of time to reach the same savings goal.  An individual in their mid-20’s that saves $2,500 per year in a retirement account earning an average of 7% interest can have nearly $518,000 saved by age 65.  An individual beginning to save at age 40 would have to place nearly $7,900 per year into the account to reach the same goal.

One of the most difficult financial decisions to make is how much you should be saving for a comfortable retirement.  There are so many unknowns looking that far into the future that many people are so unsure of what to do that they do nothing at all.  Finding the balance between preparing for tomorrow and sacrificing luxuries today can be hard, but by following some simple rules of saving, you may be able to save enough for retirement while still enjoying the quality of life you desire today.

Financial experts recommend that between 10% and 20% of your income be put away for retirement savings and the percentage that you choose to save will depend on what you would like to do during your retirement and whether you will have any other sources of income during your retirement years.  Here is how each of those saving percentages will affect your retirement years.

10% Of Earnings Saved

Saving 10% of your current earnings for retirement should be enough to cover the basic necessities of your retirement years.  Saving 10% is recommended for those who anticipate having other income streams during their retirement years that will be able to supplement their retirement savings or plan on working part time during their retirement years.  10% of current earnings is a reasonable estimate for basic retirement necessities if you begin saving for retirement before you reach the age of 30, but if you begin later in life, you will need to add another 5% of earnings to your savings to make up for the amount not deposited in earlier years.

15% Of Earnings Saved

Saving 15% of current earnings in a retirement fund should allow you to maintain your current quality of life during your retirement years.  This amount should cover all of your regular household expenses plus enough for small luxuries like occasional meals in restaurants or trips to the movies. This amount is recommended for individuals that plan on relaxing or following inexpensive hobbies during their retirement years.

20% Of Earnings Saved

If you plan on spending your retirement traveling from state to state or seeing exotic locations, no less than 20% of your current earnings should be placed into your retirement account.  If placed into an interest bearing retirement savings account, you will have a significant amount saved for your retirement.  Traveling is expensive and gets more expensive every year so it is best to plan accordingly and save as much as you can to be able to live the lifestyle you would like after you have retired.

An important part of successful financial planning is planning for retirement and the earlier you begin, the better off you will be.  There are a wide variety of investment opportunities available to choose from for retirement planning with one of the most popular being the Roth IRA.  Since its introduction in 1998, the Roth IRA has offered investors a tax-free investment vehicle that they can use to save for their retirement years.  There are a number of advantages and disadvantages to Roth IRAs and knowing what they are will help you make the decision of whether a Roth IRA is the right investment for you.

Roth IRA Advantages

One of the biggest advantages of a Roth IRA is the simplicity of setting up the account.  Most people are able to provide the information required for a new Roth IRA within minutes and can set up their account with minimal effort.  There are a wide range of options for investing the money contributed to the account and the account holder is not penalized for withdrawing funds that they have contributed to the account before the age of 59 ½.

Account earnings up to the amount of $10,000 can be withdrawn from the balance of the account to assist with the down payment for a home, as long as the home will be your primary residence.  You can elect to have the Roth IRA transferred to a beneficiary in the event of your death and the beneficiary can combine that account with his or her own Roth IRA penalty free.  With a Roth IRA, you do not have to start taking money from the account once you have reached a certain age and can save the money in the account for as long as you desire.

Roth IRA Disadvantages

One of the biggest disadvantages to a Roth IRA is the strict income limitations that must be adhered to open and maintain an account.  If you do not meet the income limitations, you will be unable to open a Roth IRA and if your income increases past the limit, you will no longer be able to contribute funds to the Roth IRA.  Roth IRA contributions are taxed on the front end and do not reduce your adjusted gross income for the year like regular IRAs and other retirement plans.

Annual contributions to a Roth IRA are capped at $5,000 per year for individuals that are under the age of 50 and are capped at $6,000 per year for individuals that are 50 years old or older.  Earnings from the account can be withdrawn prior to the age of 59 ½, but you will pay a withdrawal fee of 10% for extracting the earnings from the account.  There are many advantages and disadvantages associated with Roth IRAs and each should be taken into consideration before making the decision of whether to open an account.