Retirement isn't a reward for spending three or four decades working. It's finding a way to support yourself without a job.
Those without traditional pension benefits may need to make sacrifices during their working years if they want to retire comfortably. Social Security will provide a small retirement income, but you are responsible for saving any additional retirement income you will need.
Here are some of the sacrifices many Americans will need to make if they want to retire comfortably:
1. Don't inflate your standard of living
As you get raises and promotions throughout your career, it's common to want a bigger house and nicer stuff. But part of each pay increase should go toward your retirement savings.Instead of buying something with a bonus or trading up to a nicer car when you get a raise, some of that extra money needs to be tucked away for retirement.
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2. Strive to be debt-free
You should aim to pay off all of your debt before retirement. Many workers have spent less money (68%) and paid down debt (52%) over the past two years, Principal found.If there's no room in your budget to cut expenses or you simply don't want to, look for potential ways to make extra money through a side job or hobby.
3. Read the fine print on your 401k
Your 401k plan won't get you to a secure retirement unless you use it properly. Try to contribute enough to get your employer's maximum 401k match and consider staying with the company until you are fully vested and can keep your employer's contributions.If there is a waiting period before you can join a new employer's 401k plan or if you work for an employer without a 401k plan, try saving on your own in an individual retirement account.
4. Learn how to invest
In addition to contributing to your 401k, you need to invest some time learning how to pick investments that balance your needs for safety and growth.About half (48%) of current workers say they will manage their own money in retirement, and 69% of retirees already do, Principal found. Only a minority of retirement savers say they use online tools (10%) or professional advisers (5%) to help manage investments.
5. Protect your savings
Once you accumulate a significant nest egg, your focus needs to change to protecting it. A quarter of current workers say one of their financial priorities is protecting their existing savings, and 22% recently shifted some of their retirement savings into more-conservative investments.You'll also need to take some time to figure out how to transition your retirement savings into a steady stream of income in retirement. Only about a quarter of current workers have a plan for spending down their assets in retirement.
6. Save outside a retirement account
It is even more difficult to accumulate an adequate nest egg if you borrow against your retirement accounts or raid them every time your car breaks down or you change jobs.Early retirement-account withdrawals typically cost you a 10% penalty and income tax on the amount withdrawn. About half (49%) of current workers say they have an emergency fund, and 27% have boosted contributions to it since 2008.
A significant emergency fund outside your retirement accounts is a necessity to protect your nest egg.
This article was reported by Emily Brandon for U.S. News & World Report.
Published Oct. 4, 2010
