The 4 best ways to jump-start your retirement savings

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Saving for retirement is a lot like dieting. We all know what we should be doing, but actually doing it is hard. It’s much easier to make excuses.

We’re busy. We have responsibilities—to children, to older parents—that compete with our ability to set aside money for our later years. What’s more, wages have stagnated in recent years while the cost of living has continued to climb.

The numbers bear out the challenge: More than half of workers report they have less than $25,000 in total household savings and investments, excluding their home and any pension plans, according to the 2014 Retirement Confidence Survey by the Employee Benefit Research Institute. To be sure, not all of those surveyed had access to retirement plans, and some had incomes low enough to make saving difficult.

Yet there are plenty of people who make enough to save but don’t make saving a priority. “It’s the American way to spend 100% of what we bring in,” said Sheryl Garrett, founder of the Garrett Planning Network, a network of fee-only financial advisers.

David Nethery, senior vice president at Merrill Lynch Wealth Management in Dallas, makes sure his clients understand that they’re the ones responsible for their own retirement: “If you spend money on toys upfront, you’re not going to have as good a time later on,” he tells them.

Forget about cruises—just funding medical expenses will be hard for those without adequate savings. A couple retiring at age 65 today is expected to incur $220,000 in health care costs, during their retirement years, according to Fidelity’s 2014 Retiree Health Care Cost Estimate, released on Thursday. That figure includes monthly premium payments for Medicare Parts B and D, plus prescription drug out-of-pocket costs and Medicare cost sharing requirements. (Many procedures and doctors visits require Medicare beneficiaries to pay 20% of the cost.) And the figure doesn’t even include the cost of nursing homes and other long-term care services, which Medicare doesn’t cover.

That the Fidelity estimate is unchanged from 2013 probably comes as cold comfort—any way you cut it, $220,000 is still a huge number. And since it’s an average, some people will need more than that. For one, Fidelity’s calculations assume both members of the couple are dead by age 85, and many people live longer than that.

For those who have reached midlife without much savings, getting started can seem daunting. It doesn’t help that the financial services industry usually focuses on dollar goals, with $1 million as the bare minimum for a retirement nest egg. It’s easy to think that we’ll never amass such a sum, so why bother even trying?

The good news is that we don’t have to get there all at once. Just like with a big weight-loss goal, it’s fine (even preferable) to begin gradually. “Give yourself some breathing room and compassion,” Garrett said. “It’s not like flipping a light switch. But you do have to begin.”

We talked to Garrett and other experts about four simple ways to get started.

1. Create a rainy-day fund.

Those who don’t have at least six months’ worth of basic living expenses in a liquid account—think savings account or money-market mutual fund—should make that their first priority. This money will help in the event of an emergency like a job loss or health crisis. But it can also cover unexpected expenses like car or roof repairs.

Those who don’t have enough for these expenses turn to credit cards and incur debt, Garrett said. And just as important: For boomers, unexpected costs were the biggest factor competing with their retirement savings plans, more than paying for a child’s education or paying off large debts, according to a recent Merrill Edge survey of individuals with $50,000 to $250,000 in total investible assets.

2. Tackle your debt.

Your assets minus your liabilities equals your total net worth. You can boost this number even without saving by shrinking your debt. Common financial wisdom holds that you should pay off the credit card with the highest interest rate first, but sometimes it makes more emotional sense to pay off a small balance in full. “Knocking out those small ones gives you some satisfaction,” Garrett said.

As you pay down your credit card balances, it’s important not to incur new debt in the process. Garrett has some advice for those who have a spending problem: Go to cash. Don’t even bring your credit cards to the store with you. If you worry you’ll be tempted, you can freeze them in ice in your freezer, she said. That way, they’ll be there in case of emergency but not very accessible for impulse purchases. You might think the cash will burn a hole in your wallet, but for most people the opposite is true, Garrett said: Forking over the greenbacks makes the spending more real.

3. Put savings on autopilot.

You shouldn’t wait until your debt is completely erased to begin saving for retirement. You’ll want to eventually be saving at least 10% of your income, but you can get there over time. If your company has a 401(k) and you’re not contributing to it yet, then start with 2% and live with that for three months, Garrett said. You’ll barely notice the difference in your paycheck. At the end of three months, up your contribution by another 2%.

About one third of 401(k) plans offer an auto-escalation function that allows you to put your contribution increases on autopilot as well, said Edmund F. Murphy III, head of defined contributions at Putnam Investments, which provides record-keeping, participant education and other services to employers that offer retirement plans. If yours is one of them, take advantage of it.

Those who don’t have access to a company 401(k) plan can open an individual retirement account at a low-cost brokerage firm. Like company plans, these allow you to automate your regular contributions, so you don’t have to write out a monthly check or remember to make an electronic transfer. A good investment to start with is some type of U.S. full-market index, such as the low-cost Vanguard Total Stock Market Index Fund (VTSMX), Garrett said.

She has a clever tip for beginning investors who are skittish about the prospect of losing money: Pick a target-date retirement fund as if you’ll retire soon, even if you won’t. These mutual funds automatically adjust their investment mix more conservatively as they approach the target retirement year. So if you’re 45 years old, for example, you could pick a 2019 fund that assumes you’ll retire in five years. You won’t experience as much volatility as if you picked one based on your real retirement goal. Once you’ve amassed enough of a balance to feel more comfortable with investing, you can increase your risk accordingly. (Financial advisers say it’s best not to stay too conservative for the long haul, since retirement portfolios need the growth that stocks provide.)

4. Maximize your human capital.

One way to stretch your nest egg is by working longer. Those who will likely fall short of their savings goals need to make sure they’re in a position to work for as long as possible. Some careers and workplaces are friendlier to older workers than others. If you can’t imagine staying at your job until age 70 or even beyond, it might make sense to retrain for another, even if that means putting your retirement savings on hold for a short time.

Nethery of Merrill Lynch has seen clients build successful encore careers in real estate. Older people often do very well in all types of sales, he said, since they tend to be less pushy than their younger counterparts. Other jobs that offer flexibility include online course instructors and consulting—an admittedly nebulous term that can apply across various professions, from education to engineering. And customer-service jobs often allow new employees to work from home.

“If you’re behind the eight ball, building financial assets is important, but human capital is equally if not more important,” William Dion, financial planning officer with Rockland Trust Company, a Rockland, Mass.-based commercial bank.

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