Saving for retirement requires you to take the initiative and build your own nest egg. No longer can you bank on Social Security benefits. According to a June 2009 article in "U.S. News & World Report," the Social Security trust fund will run out in 2037, after which tax revenue will only generate enough income to pay 75 cents on each dollar of retiree benefits. Today's younger workers must contemplate how they will fund their golden years. This means looking, sooner rather than later, for the best ways to save for retirement.
Participate
Unfortunately, only 50 percent of people who work full time are offered some sort of pension plan through their employer, according to "U.S. News & World Report," and if the plan involves a 401(k), participation is optional. CNN Money financial adviser Walter Updegrave encourages anyone fortunate enough to participate in a pension plan to enroll in it so that their money "flows automatically from (their) paycheck into (their) retirement savings account before (they) even get a chance to spend it." This the perhaps the best way to make sure you build up your retirement savings. Even though the cost of living has increased and you may think you need every penny from your paycheck, Updegrave advises you to tighten your budget and avoid spending for immediate gratification.
Supplement
In addition to employer-sponsored plans, CNN Money lists individual retirement accounts (IRAs) as the second-best way to save for your retirement. These accounts give you certain tax advantages, depending on which type you choose. Roth IRAs are taxed on the front end, leaving the income you get from your IRA tax-free once you retire. Traditional IRAs allow you to take all or some of your yearly contributions as a tax deduction, as long as you are not a high wage-earner. However, your income from the IRA is taxed once you begin to receive contributions. In 2010, you can contribute $5,000 to a traditional or Roth IRA if you are under the age of 50, and $6,000 if you are age 50 or older by the end of the year. Alternately, you can contribute the total of your taxable income, if this amount is smaller.
Minimize Debt
The biggest threat to saving for retirement is unnecessary debt. In a December 2009 article, Updegrave points out that young people of Generation Y have an average of three credit cards, 20 percent of which have a balance of more than $10,000. But there are other ways to get into debt--buying too much house, too much car or charging expensive vacations and other creature comforts rather than saving for these things. The best way to save for retirement is to take on debt only for things you absolutely need but cannot afford to pay for upfront, such as a home or a car. Even when taking on "good debt," make sure you can easily make your monthly payments.
Plan
There are a host of ways to save for retirement that allow you to invest your money, but some investment types are riskier than others. More aggressive but unpredictable investments may include stocks, while more conservative investments may include putting your future retirement savings in a certificate of deposit (CD) or in mutual funds. If you're not financially-savvy, it may be best to seek the services of a certified financial planner, says CNN Money.
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