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5 Retirement Savings Strategies for 2013

Scott Gamm

NEW YORK (TheStreet) -- Saving for retirement is an area of personal finance that makes your stomach churn. Saving for something decades away isn't as appealing as setting more short-term goals, in which the results appear sooner.
The two most common types of retirement accounts, the 401(k) and Roth IRA, are undoubtedly essential to any retirement savings plan of action. For this year, the contribution limits for both accounts have been raised by $500, to $17,500 and $5,500, respectively.

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Do you need a quick retirement tune-up? We asked personal finance experts to share five direct ways to jumpstart your savings for when you're no longer working:
1. Start with the basics
If you're working for a company or organization, talk to your human resources department about opening a 401(k), which is where you contribute money now and pay taxes on that money after age 59.5 when you retire. As for the Roth IRA (which is not offered by employers, but can be opened at discount brokerage firms), you are contributing money that you've already paid taxes on.
With a 401(k), your employer may contribute money to your account, too.
"Maximizing contributions to a 401(k) up to the company matching provision is the first step for any retirement accumulation plan," certified financial planner Damian Rothermel says. Any money your employer matches is essentially "free money."

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2. How much to invest
A common rule of thumb is to direct 10% of your annual income toward retirement savings.
If you're unsure in which account to invest more money in, Rothermel suggests a balance: "If you are in a higher tax bracket and anticipate being in a lower one in the future, you should max the 401(k) first and then the Roth IRA. If you are in a lower tax bracket, consider maximizing the Roth IRA as the second step and then increase your 401(k) contributions if you have additional funds you would like to save."
3. 401(k) fees
Employers will pass the baton to fund companies and asset managers to handle all the 401(k) plans for its employees -- and this comes with fees.
"Most employees pay the lion's share of 401(k) plan expenses. Review the information with your fellow employees and ask your employer about these costs as group. A reduction of 0.50% in annual plan fees can have a huge effect on your account balance at retirement. But most employers don't take the time to negotiate the plan fees until their employees ask," warns Robert Massa of Ascende Wealth Advisers.

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4. Take advantage of the increase
If you're already contributing the maximum on your 401(k) or Roth IRA, you can now throw an extra $500 toward these accounts this year, thanks to that increase in the contribution limits.
"Many companies today offer an automatic escalation feature in the 401(k) or Roth 401(k) plan. These features allow for an automatic annual increase in the amount you are contributing without you doing anything. You can usually opt out of the increase should your circumstances change," says Chris Jones, chief investment officer at Financial Engines.
A Roth 401(k), by the way, is a hybrid between the 401(k) and the Roth IRA that some employers now offer.
5. Understand the power of compounding interest
A cornerstone of retirement savings is time -- the longer you save, the more you'll end up with, thanks to compounding interest.
"If a 35-year-old investor contributes an additional $1,000 to her investment portfolio each year and it grows at 7% per year, the total value would be almost $150,000 by her age 70," says Sarah C. Tims, CFP partner and senior wealth manager at RMB Capital Management.
--Written by Scott Gamm

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