Building a Nest Egg

Most people have put some thought into how they’ll get by financially after they retire, and the fact is, building a nest egg is one of the most important things you can do for yourself. Social security alone was never intended to comprise the bulk of our retirement income. It was meant to supplement it; to provide a base so no American would ever be without income as they entered their senior years. So what do you do to make sure you’ll have more than a Social Security check each month after you have left the work force? Here are some guidelines.

Take advantage of retirement accounts

If your employer offers a 401(k) package, take advantage of it. Money will be deducted from your paycheck and deposited into your 401(k) often with employers contributing a certain percentage of your contribution to your account as well (which is like receiving a monetary gift from your company). If you don’t have a 401(k), open an IRA (individual retirement account) instead. Both types of accounts will provide tax benefits and, after contributing for as many years as you can, will help provide income after you retire. Check with the benefits counselor where you work, or with a financial advisor to see what the best plan is for you.

Start saving as soon as possible

Setting up and regularly contributing to a savings account is recommended by most financial experts. Savings accounts can be used for emergencies like medical expenses or to pay the bills after a job loss, but approach it with the mind-set that this money will not be touched unless absolutely necessary. A general rule of thumb is to save 10 percent of your income. If this sounds too difficult, you might consider doing without some of the little luxuries you indulge in such as upscale coffee each morning, or buying lunch every day instead of bringing it from home. If you can save a little each week, you’ll be surprised how quickly it will add up.

Pay off your debts

Even before you start saving, you need to get your debt paid down whether you have balances on student loans, credit cards, or any other type of outstanding debt. Since the interest rate on loans is generally so much higher than what you’ll earn on your savings, it makes sense to pay off high-cost debt as quickly as possible and then start putting your money in a savings account. And while you’re paying off your debt, consider transferring high interest rate credit card balances to low or zero interest credit cards that you have received special offers from to save money on interest.

Don’t use tax refunds like a savings account

Many people deliberately overpay their taxes so they’ll receive a refund each year. But handing the government extra money is like leaving your cash all year in a non-interest bearing account. The average tax refund is around $2,000, so if you adjust your withholding to have less money deducted from your paycheck instead, you’ll have more cash on hand to invest in a retirement account which will provide tax benefits and money to retire on later.

Start right now – and don’t stop

Remember, the most important part of building financial security is to get started and keep going. If you use discipline and plain common sense, your nest egg will be waiting for you when you need it.