When planning for retirement, the truth is that the earlier you start saving and investing, the better off you’ll be, thanks to the power of compound interest. And even if you began saving late or have yet to begin, it’s important to know that you are not alone, and there are steps you can take to increase your retirement savings. “It’s never too late to get started,” says Debra Greenberg, director, IRA product management, Bank of America Merrill Lynch.
1. Focus on starting today
Especially if you’re just beginning to put money away for retirement, start saving and investing as much as you can now, and let compound interest — the ability of your assets to generate earnings, which are reinvested to generate their own earnings — have an opportunity to work in your favor. “The more you can invest when you’re young, the better off you’ll be,” Greenberg says.
2. Contribute to your 401(k)
If your employer offers a traditional 401(k) plan, it allows you to contribute pre-tax money, which can be a significant advantage. Say you’re in the 15% tax bracket and plan to contribute $100 per pay period. Since that money comes out of your paycheck before taxes are assessed, your take-home pay will drop by only $85. That means you can invest more of your income without feeling it as much in your monthly budget.Footnote 1 If your employer offers a Roth 401(k), which uses income after taxes rather than pre-tax funds, you should consider what your income tax bracket will be in retirement to help you decide whether this is the right choice for you. Even if you leave that employer, you have choices on Learn about what to do with your 401(k).