In a nation struggling to save enough for retirement, super savers -- those who save more than 15% of their pre-tax income -- have taken on an almost mythic status. But they're very real and they're increasing in number. One in five millennials is a super saver, according to Fidelity, along with 27% of Gen Xers and 37% of baby boomers.
With careful planning and some lifestyle changes, you can join their ranks, too. Just take the following four steps, and when you get to retirement, you'll have a comfortable nest egg to show for it.
Image source: Getty Images.
1. Open tax-advantaged retirement accounts if you haven't already.
If your employer offers a 401(k), start here. You can contribute up to $19,000 to a 401(k) in 2019 or $25,000 if you're 50 or older. Your employer may also match some of your contributions. Any money you put in your 401(k) this year will reduce your taxable income, but then you'll have to pay taxes on your distributions in retirement, unless it's a Roth 401(k). Contributions to Roth 401(k)s don't reduce your taxable income this year, but then the money grows tax-free afterward.
Keep an eye on your plan's fees because these can eat into your profits. Check your plan summary or the prospectus for your investments to find out how much you're paying. It shouldn't be more than 1% of your assets each year. That's $10,000 on a $1 million portfolio. If you're paying more than that, try talking to your employer to see if they will offer more affordable investment products, like index funds -- mutual funds that attempt to mimic the performance of a market index.
If your 401(k) is too expensive, or if your employer doesn't offer one, open an IRA instead. Traditional IRAs are tax-deferred like most 401(k)s, while Roth IRAs work in a similar way to Roth 401(k)s. However, you can contribute only $6,000 to IRAs in 2019 or $7,000 if you're 50 or older. But IRAs usually have lower fees and more investment products to choose from, so you can more easily customize your portfolio.
2. Automate your savings.
Automating your retirement savings eliminates the risk that you'll forget to set aside money one month or accidentally spend your savings. You should be able to choose what percentage of each paycheck you want to go toward retirement each month, either by talking with your company's HR department or by adjusting your 401(k) settings online. IRAs may enable you to schedule a repeating deposit as well.
If you can't save 15% of your income right now, that's OK. Just do as much as you can and try to increase your savings by 1% every year. Some 401(k)s give you the choice to automatically increase your savings percentage every year, so you don't have to make this change manually.