How to Save for Retirement

Two Methods:Accelerate Retirement Savings According to Your AgeConsider Income-only versus Income & Growth Options

You want your money to last throughout your retirement. What cost only $100 in 1958 would have cost a staggering $736.58 in 2008, so lock-in retirement income as soon as possible before you savings lose value.[1] With such rising inflation expected to constantly erode your purchasing powers, saving money to invest for retirement becomes extremely important. This article will offer some insights on how to avoid expenses and use those funds to save money for a retirement.


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    Seek the advice of professional financial advisors to help you with this task, realizing you can’t afford to make mistakes, since you’ll need to make every dollar grow. Saving and investing for a reliable retirement income for the rest of your life — no matter how long you live — is an ambitious undertaking that takes knowledge, time and skill. So, it’s likely that you may need or want this kind of help.
    • That said, good advice does not have to cost you anything other than time. Plenty of excellent books on retirement savings are freely available for you to read courtesy of your local public library. Try to be discerning though, and check the reviews available online such as from While some books are worth their weight in gold, others are drivels worth far less than zero.
    • Take free online financial classes such as from and MIT Open CourseWare. Your local college may also offer financial classes you can audit for free.
    • Don't hand over your money for a financial advisor to manage. At best, you will be charged a 1% asset under management (AUM) fee that would cost you about one-third of what you could have after 40 years, assuming 7 percent return per year. (i.e. if you start with $100,000, instead of having $1.5 million after 40 years, you would end up with only $1.0 million, paying half a million to your financial adviser alone, while you assumed all the risk associated with investing.) At worst, most or all your money may be stolen by an unscrupulous financial advisor.[2]
    • If you still feel you need a personal financial advisor, go with a fee-only advisor (NOT "fee-based"!!) with no adverse action on record and who will contain costs by choosing low cost broad market based index funds with low turnover. Even with a very small portfolio, don't agree to more than 1% AUM fee. And if you have a large portfolio, you should be able to negotiate fees down to 0.5% or less.
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    Budget to save as much money as possible and avoid unnecessary spending. A good, aggressive saving goal should be at least 50% of your after-tax earnings. Cut down on luxuries. Don't spend "seed" money but invest/germinate the seeds, hold/plant and water--nor do you "eat nest eggs" that need to be allowed to "hatch," grow and multiply into a productive "flock" of investments. Live mostly on absolute essentials, (food, shelter, transportation),... Search around for the best prices. Buy things that will appreciate in value (e.g.: a home, collectible gold, land, rentals [renters buy "their" houses/apartments "for you", and pay the repairs, insurance and taxes but those expenses are deductible],...) and avoid things that depreciate in value (e.g.: a new, or expensive car, big TVs). For example, read books or watch basic television channels instead of paying for cable television, cook your own food instead of dining in restaurants, quit smoking. Learn to live simply on modest means, and always look for free or economical alternatives.[3] Always think of opportunity cost: the dollar you spend now could have turned into many dollars by the time you retire. Smart spending will provide the foundation for saving money for retirement.
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    If you live in the United States and it is available to you, enroll in a 401(k) account. If your employer offers 100% match up to a maximum that will be matched, find out what the maximum is, and contribute at least the amount required to get the maximum company match. 401(k) accounts are actually mutual funds that can charge high fees (e.g. around 1% per year), and therefore will not do as well as investing in stocks and bonds directly. But, with employer matching your funds, you can double your investment immediately, and then hopefully your fund investment will increase in value. 401(k) accounts also offer tax advantages; inquire and read about them. You may be required to contribute at least a minimum amount to qualify for employer matching (to save about 10-30% of your income). Remember that 401k's are taxed upon distribution; so try to estimate what the tax rate will be when you take your money out. Estimate your tax before using withdrawn money; you need to hold back enough for paying those taxes.
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    Develop an investment plan known as a portfolio for your saved money. A portion should be delegated to stocks, another portion to bonds, perhaps another portion to commodities like gold and silver, and another portion to cash in the form of savings account, certificates of deposit (CDs), etc. If you are not near retirement, an example allocation is 60% stocks, 20% bonds, 10% gold and silver, 10% cash. The reason for diversification is to reduce risks and maximize returns. By not having all assets in a single asset, you are less affected -- if the value of one components of your portfolio crashes.
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    Rebalance the categories in your portfolio periodically (e.g. monthly, quarterly, or annually) to maintain the proportions. For the example above, if stocks crash and gold and silver soar, the weight of stocks will be less than 60% and gold and silver more than 10%. You will then sell gold and silver to buy stocks until 60% stocks (unless you are near retirement) and 10% gold and silver is restored. Rebalancing helps you to maintain control of your emotions and practice buying low and selling high, rather than the reverse. This will help you lower the risks of losing money.
    • To minimize transaction costs, you should rebalance by predominantly adding new money to under-weighted assets during your wealth accumulation stage, and selling over-weighted assets during your wealth distribution stage.
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    Diversify within each asset class of your portfolio by assigning a weight to each sub-class. Buy stocks both domestic and foreign, from every sector, and of any market cap. Buy both government and corporate bonds. As for gold and silver, buy physical metals to take possession. Don't trust others to store your valuables for you that you bought at high costs. Don't buy gold and silver more than 10-15% over spot, or else they would have to appreciate a lot for you not to lose money when you need to cash out. Gold and silver coins over 100 years old may be considered better than bullion because they have numismatic value in addition to their intrinsic metal values.
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    Consider changing your assets into a form such as life annuity where you could not lose it, if you are sued whether you have too much to lose or just enough to tempt a swindler. You can be certain that some people like to try to pick pockets that have discoverable assets. Attorneys of anyone who may sue you will use compulsory discovery processes and you can be required reveal your assets. Avoid seeing your life savings go to others accounts. Also, purchasing "umbrella" liability insurance for more protection may be a good plan. Your insurance agent will tell you your options and how much your should get.
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    Reduce risk when nearing retirement and stay out of high risks from that time on. Reduce the portion in your portfolio delegated to risks such as stocks and increase the portion in safe investments including municipal bonds and cash. Chances are, the market will decline or even may crash when you need to be taking out your money. What can go wrong includes not having time or opportunity to recoup losses from dire events in the market, and you might have to postpone retirement -- if you did not reduce your risks to the minimum.

Method 1
Accelerate Retirement Savings According to Your Age

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    Follow these general guidelines to help you build your retirement savings depending on the number of years until you would retire. The percentages to invest assume you are just beginning to save and have the goal of maintaining your lifestyle for up to 30 years of retirement.[4]
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    If you start saving in your 20s:
    • Save between 10 percent and 15 percent of your income for your retirement investments.
    • Do not cut back on your retirement savings.
    • Small contributions to your retirement plan can grow over time.
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    If you start saving in your 30s:
    • Save between 15 percent and 25 percent of your income for your retirement investments.
    • Keep a list of your spending to find ways that you may see to cut back.
    • If you receive a bonus, put as much of it as possible into your retirement savings.
    • Also fund your retirement accounts -- even if you begin saving for your children's college expenses, or even if you pay extra on your mortgage to pay it off early.
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    If you start saving in your early 40s:
    • Save between 25 percent and 35 percent of your income for your retirement investments.
    • Put the maximum amount into your 401(k), SEP-IRA, or other retirement plan at your place of employment.
    • Contribute to a traditional IRA (or Roth IRA, if eligible).
    • Consider a deferred variable annuity as another option.
    • Consider less expensive public (state) universities for your children, or ask that they use educational loans, grants, and scholarships.
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    If you start saving in your mid-40s and older:
    • Save more than 35 percent of your income for your retirement investments.
    • Put the maximum amount into all of your tax-deferred retirement account options.
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    Get out of "risk based" investments by your early fifties: About 10 years before your planned retirement age put all funds in fixed income, "safe" investments. At 50 years of age there would be no time to recover from a market crash or a sharp downturn, so it is time to put money in guaranteed returns.

Method 2
Consider Income-only versus Income & Growth Options

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    Consider income-only products. You should read prospectus documents. Do not make any decisions under pressure or on the whim of the moment. Check with as many companies as you like. Take your time to decide[5]:
    • "Bonds" may give fixed earnings. You can choose taxable, or tax-free interest payouts, and use bond laddering (bonds becoming mature at different times) to stabilize your income.
    • "Bond mutual funds" which are made of a number of bonds may create a periodic payout with bond mutual funds. Some brokers can give you choices with screening of short lists of tax-free and taxable bond funds that they recommend (sell).
    • "CDs" may be competitively priced CDs that offer a fixed interest payout from FDIC-insured banks nationwide.
    • "Income annuities" are used to secure a guaranteed income stream throughout your life that's independent of interest rate changes or market volatility with an income annuity.
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    Compare income and growth product options:
    • "Income mutual funds": Identify no-transaction-fee funds that emphasize income distributions while still providing growth potential to help you keep pace with the cost of living. Choose from funds designed to produce monthly payments of investment income while giving your savings opportunity to grow. Monthly Income Funds give you a range of options to match your targeted income needs.
    • "Variable annuities" may have guaranteed lifetime withdrawal benefits. There are annuity investments with the option of a guaranteed monthly lifetime income.


  • Diversify away from what you already have. For example, if you have a steady job, it is like a huge bond that pays distribution every month, in which case you should buy more stocks than bonds.
  • Develop a well-diversified portfolio and keep it in line with the proportion that you have set. This will motivate you to buy low (in a crashed category) and sell high (in a booming category) while keeping emotions to a minimum and with a cool mind.
  • It is never too early to start saving for retirement. The earlier you start, the more saving you will have, and the easily it will be, if you develop the habit of saving early on. You will accumulate more wealth for retirement, if you start saving sooner, and let compounding interest work for you. On the other hand, it is never too late to save for retirement. Start where you are and do your best.
  • Please note that 401(k) and IRA accounts are available only in the United States. They are passive ways to invest your savings for retirement with some tax benefits. If you live outside the United States, simply follow the steps as above to save for your retirement and manage your money actively.
  • Saving money for retirement is a life-long commitment and investment. It is important to put aside money for this end regularly.
  • Save money separately for emergencies such as a loss of income.
    • Don't ever use any of your retirement savings unless it is really needed.
  • To calculate how much you will need for retirement, you use one of many retirement calculators online, such as here.
  • Consider Individual Retirement Accounts (IRA), if you live in the United States. They may offer some tax benefits.[6] The caveat is that you cannot withdraw money from IRAs or another standard retirement plan without paying a hefty penalty until you reach 59 1/2 years old.
  • If you have a 401(k) and left the job, you may choose to keep the money with your old employer, provided you have at least $5000 in the account (this is typically the best option; you can always move it later, if you want), or roll it into an IRA, if you want more investment options. You can also cash it out, but this is typically ill-advised, as you could lose nearly half of your account balance to taxes and early-withdrawal penalties.[7]
  • It is easier to save for retirement, if you work for employers who offer the best benefits, such as retirement plan match, tuition reimbursement, pensions, or even health care for retirees.[3]
  • If you have high risk tolerance and a very long investment horizon (i.e. you won't need the money for at least 20 years), consider putting it 100% into stocks, or even using a little leverage, by going on margin (leverage under 1.5 should be pretty safe, and under no circumstance should you go beyond 2:1 leverage, or else you would be tempting fate).


  • Keep your head cool. Don't chase hot stocks, and don't panic when stocks drop. The worst you can do to lose money fast is to be overly enthusiastic when market rises and buy high, and sell low when the market declines. This is why it is critically important to develop a well-diversified portfolio and stick to it by rebalancing regularly.
  • Avoid double risk by investing heavily in the economic sector that pays your paycheck. For example, if you work in the financial sector, and your portfolio is heavy in financial stocks, you could risk losing both your job and your savings when the financial sector of the economy crashes. Diversification is key in risk reduction.
  • Investing is different from speculation. Your saving for retirement is not risk capital. Don't buy into promises of fast money with hot stock picks or the forex market. Stocks that are hot will burn your retirement money. The forex market is played by professionals with many years of experience and is entirely speculation, inappropriate for any money designated for retirement.
  • Never take on credit card debts, unless you are taking advantage of a 0% introductory APR offer and paying the balance in full when the introductory period is over. Do not use credit cards at all unless you can be sure to pay off the entire sum every month. Learn to build credit without credit cards. Buy only essential things, and use money you already have, not money you expect to have.
  • The most important thing is to start saving for retirement early!! If you save $100 a month starting at age 20, you will have $1,048,250 at age 65, assuming 10% annual return. But if you waited till age 30, saving the same $100 a month will provide you with only $379,664 at age 65. Much of the return is due to compound interest from the savings when you were young. That is why compound interest is called the eighth wonder of the world.
  • Be wary of high fees that can eat away your return, such as those charged by actively managed mutual funds, financial advisors, and many annuity products.
  • Many people lost 50% or more of their investments in stocks, bonds and the highly leveraged real estate bubble around the year 2008. There were similar devastating events in the 1970s. Also, in the 1980s and 90s savings and loan (S&L) crisis, more than 1600 of about 3200 of these "fixed" real estate income investments failed, as over-leveraged institutions went bankrupt. Some funds were insured by the Federal FSLIC, but some were not insured. There were similar high risk loans and failures during the 2007 subprime mortgage financial crisis in real estate mortgages. One day such seemingly viable/safe investments are up -- but virtually the next day the market is through the floor, and funds disintegrate as into ether (vapor).[8]

Inflation Warning

  • See how 7% inflation nearly doubles the cost of living in 10 years: (1.07^10=1.96). That is about 2X (two times) cost, for example, if a gallon of milk did cost $3, it would cost nearly $6, 10 years later and the then $6 milk would cost $12 after 20 years. Inflation slashes funds from availability for saving and encourages spending by necessity.
    • Expect wages and salary to lag behind as companies must also deal with the inflation in every area of its costs. This, in turn, leads to higher costs of investment as the value of your dollars saved is shrinking since you need an increase of 7% or more dollars every year to just keep up with the inflation. When the price level rises, each dollar buys fewer goods and services -- a real loss of value:
      • If you borrow funds, (with an excellent credit rating, at an interest rate of 8% when there is extremely low inflation), but now assume 7% inflation.
      • If you save money at the interest rate of 3% and the business firm could borrow it from the bank at 8%. The profit margin to the bank is 5% each year, but inflation would destroy that possibility.
    • Account for inflation of 7%, however, as the bank is likely to need to increase the cost of borrowing from 8% by adding 7% to make that about 15% which is nearly 100% higher to cover the cost of inflation.
  • Caution: Less than perfect credit could double the rates or make credit unavailable.

Things You'll Need

  • Budget
  • Savings account
  • Retirement account
  • Safe investments

Sources and Citations

  1. Inflation Calculator.
  3. 3.03.1Oops, I Forgot to Save for Retirement! By Robert Brokamp. January 13, 2005. From Retrieved 15 February 2010.
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Categories: Retirement