Are you saving for retirement? While it may sound like a luxury that comes after saving for your children's college tuition or other expenses, experts say that once you've built an emergency cash reserve, retirement should be your next savings priority.
"Saving for retirement is critical, especially for people in their 30s, 40s and 50s," said Suzanne Boas, president of Consumer Credit Counseling Service in Atlanta. "Even if you hope to retire in five to seven years, you can build a nest egg to help with your after-work life."
A recent study by Merrill Lynch reported that 77 percent of baby boomers say they are setting aside too little for retirement.
"This is an alarming statistic," Boas said. "It's never too late to plan for retirement. Many families save to fund college, but the reality is that they should be putting that money away for retirement. There are many ways to fund college tuition, from scholarships to student loans, but the choices for funding retirement are slim."
Relying on Social Security benefits alone to fund retirement is not a good decision because the program's future is uncertain.
"The best way to have a financially throughout your lifetime," she said. "However, starting now ¨ no matter how soon you plan to retire ¨ is better than not starting at all."
Boas points out that with compound interest, savings can grow quickly. For example, a $50,000 lump sum invested at 10 percent interest will grow to $100,000 in about seven years and to $200,000 in less than 15 years.
Boas offers tips for building a retirement nest egg:
Pay yourself first: Either write a check to your savings account each time you pay bills or have a set amount automatically transferred from your paycheck each pay period.
Keep paying loans: Even after a loan is paid off, continue taking the same monthly amount and deposit it into a retirement plan.
Save raises: Invest the amount of your raises rather than increasing the costs of your lifestyle.
Adjust withholding tax: If you've gotten a refund after filing your taxes, you've overpaid during the year. Change your W- 4 form to put that extra money in your pocket each month, then invest it in a retirement plan.
Reduce monthly fees: Review your bank charges, telephone and cable bills and eliminate services you do not use.
Cut corners: Bring your lunch, clip coupons, go to matinee movies and invest what you've saved.
"Even making a few small changes and being committed to saving for retirement can make a big difference over the years," Boas said. "The key is to take the plunge and make changes now. The longer you wait, the less money you'll have to retire with."