7 Smart Strategies for Building a Retirement Nest Egg

Building a comfortable retirement nest egg takes careful planning and discipline. With lifespans increasing and healthcare costs rising, relying solely on Social Security or a work pension may no longer be enough for retirement. While you might be able to eat, chances are, you won’t have much left over or be able to enjoy a decent quality of life. This is why it is sensible to plan ahead, so you can get all your ducks in a row long before you leave work for the last time.

Here are 7 smart strategies to help build your retirement savings.

Start Saving Early

Thanks to the power of compound interest, the money you invest in your 20s and 30s can grow significantly more over time compared to money invested later in life. Take advantage of time and start saving from your first paycheck. Even if you can only contribute a small amount at first, time will allow your investments to grow substantially. Aim to save at least 10-15% of your income for retirement starting as early in your career as possible.  

Take Full Advantage of Employer Retirement Plans

If your employer offers a matching 401k contribution program, you should optimize this benefit by contributing enough to receive the maximum company match amount possible. View the employer match as bonus funds that can jumpstart your retirement investing. Beyond this, keep investing additional funds into the tax-advantaged 401k and up the annual contribution limit to supercharge your retirement stash.

Budget and Cut Expenses

Closely tracking all your spending is vital to identifying areas where you can trim costs and direct more money toward retirement savings goals. Pack your lunch, downgrade cable packages, drive used vehicles longer – small lifestyle changes multiply over years into significant savings. Establish a viable spending budget with retirement priorities in mind; identify waste you can cut from eating out, entertainment, shopping, etc.  If you are careful now, you may have enough spare cash to splurge a little when you finally retire. 

Pay Down High-Interest Debts

Consumer debt like credit cards or personal loans will substantially undermine your ability to save and invest for the future due to accruing high interest costs. Make paying off any debt carrying 8% or higher interest rates a top priority goal above discretionary spending. List out all debts by interest rate and minimum payments and develop an aggressive repayment schedule.  

Choose the Right Investments

Retirement investing works best when you diversify your holdings across stocks, bonds, mutual funds and other uncorrelated asset classes. Not only does this provide higher return potential, but it can mitigate overall risk compared to single assets. Meet with a fiduciary financial advisor to determine an appropriate asset allocation between equities, fixed-income investments and alternatives tailored specifically to your risk tolerance and retirement timeframe. 

Reinvest Investment Earnings

Opt to have the dividends, interest payments, capital gains distributions and other income generated from your retirement portfolio automatically reinvested instead of taking distributions in cash. Take advantage of compounding interest and reap the benefits later. The power of compounding will grow your reinvested earnings substantially when done consistently over decades of saving and investing. This “free money” can significantly boost your eventual retirement nest egg size.

Avoid Early Withdrawals

While the temptation may arise along the way, avoid tapping retirement accounts before age 59 1⁄2 if possible. In addition to forgoing further potential growth, early withdrawals also face a 10% IRS penalty fee along with being taxed as ordinary income. Allow all contributions and earnings to remain invested tax-deferred to potentially grow undisturbed for decades until actual retirement.

Use all of these strategies wisely and you can look forward to a less frugal retirement. 

*This is a collaborative post.