Now, Create a Retirement Fund

You have paid down your debts. You have built an emergency fund. Now for the part that usually comes to mind when you hear the words “planning for retirement”: Create your retirement fund.
You know that you need to save for retirement, but it seems tough. There is some good news. The government gives tax breaks to help you save for retirement. Your employer wants to help you save for retirement. You have years for your retirement account to grow, which means that a little savings goes a long way. In other words, this is really easy. You just need to do it.
• Sign up for your retirement plan at work. You’ll get automatic tax breaks for every dollar you put in, so the government gives you an immediate boost. (You may have a plan that gives the tax break when you retire rather than with your contributions.) And your company may give you matching contributions, which really is like free money lying on the table. So be sure you reach over and pick it up.

• Create your own retirement plan: If your boss doesn’t offer a retirement plan, open an IRA (Individual Retirement Account) on your own. (If you are self-employed or if you run a small business, open a SEP-IRA or an individual 401(k), both of which offer higher savings limits and extra tax breaks to small business owners.) IRAs are easy to set up;  you can open one through your local bank or through an online financial institution.
Look for an IRA that has low fees and plenty of investment options. Once you’ve
opened your account, just start contributing. The government will help you fund your IRA by chopping down your taxes, so take advantage of it—it’s like walking around with a bucket when it’s raining money.
How much should you put in your retirement accounts? Roughly 10 percent of your take-home pay. If your employer contributes to a pension or savings plan, you can put in less; if you are over 35 and you are just getting started on saving for retirement, you should put in more.
Once you have put some money in your retirement fund, sit back for a minute and congratulate yourself. Half of all Americans never make it this far. If you have a retirement account and you are putting money in it, then you have just made it into the upper half (financially speaking) of all adults in the U.S. Congratulations!
So how do you build your retirement savings? A little at a time. Think of it this way. How do
you eat a huge meal? One bite at a time. How do you make a long trip? One mile at a time.
How do you build a big house? One brick at a time. You wouldn’t say, “I can’t possibly eat the
whole meal!” or “I’ll never get to Milwaukee!” You would just keep at it, one step at a time—
and not think much more about it.
Okay, you already know this. So here’s the next question: How do you get half a million dollars
in your retirement account? Here’s a hint: The answer is not “Win the lottery” or “Inherit a
bundle from a long lost uncle.” The answer is that you will get $500,000 by saving a little at a
time. Save, and keep on saving, and you’ll make it sooner than you think.
Still not persuaded that you can build that mansion one brick at a time? Maybe the math will
convince you. Suppose you earn $50,000 a year. Now suppose you stick with your retirement
plan, setting aside roughly 10 percent of every paycheck for your future and investing it sensibly.
In 15 years, you’ll have more than $130,000. And in 25 years, you’ll have nearly half a million
dollars.
Take a look at the table, which shows you how much your savings can grow if you put aside 10
percent of your paycheck.