If you can start saving for retirement when you're young, the difference in savings will be exponential. "If you can start saving in your 20s, you're really going to come out ahead," says AuWerter. "If you start at age 25, setting aside $5,000 each year... until you're age 65, assuming the account earns 8% interest... you'd have 1.3 million dollars. If, on the other hand, you start doing this at age 45, at age 65 you'd have $230,000."
AuWerter advises setting aside at least 10% of each paycheck for your retirement. Or, max out your 401k. "This year, you can contribute up to $15,500, and that's not including your employer contributions," says AuWerter. Remember, these are pre-tax dollars, so it probably won't hurt your paycheck as much as you'd think.
Some people want to invest their money as they see fit, but aren't sure where to start. "If you're uncomfortable, go for the target retirement funds," says AuWerter. "Basically what happens here is that it starts off more agressive when you're young and it automatically shifts to become more conservative as you get closer to retirement age." A fund like this helps you get your allocation right the first time around and removes all the guess work. To make things even easier, funds like this are being offered more frequently by employers, so it may be an option for your 401k.
Also, don't forget about IRAs. "They're great for people that don't have a 401k at work or for people that have already maxed out their 401k and they're looking for more ways to save," says AuWerter. AuWerter suggests Roth IRAs. Your contributions are all after taxes, but your withdrawals after retirement are completely tax free. However, there are income limits for Roth IRAs, so AuWerter suggests investing before you start to make the big bucks.
Finally, leave your retirement money alone, even if you change jobs. "Even if the balances are small, do not drain that account," says AuWerter. It takes some time to get substantial savings established, and you don't want to compromise that by dipping into the funds too early.
For more information on your retirement, as well as other personal financial advice, visit the SmartMoney website by clicking here.
By Erin Petrun