An exercising woman celebrating

It’s easy to put off saving for retirement, right? I mean, who knows how much you’ll actually need? It’s so far away, and you have bills to pay today…

But the reality is the best way to hit your retirement goal is to start early.

“According to a report from the Economic Policy Institute (EPI), the mean retirement savings of all working-age families, which the EPI defines as those between 32 and 61 years old, is $95,776.” – CNBC

That might sound like a lot, but this money will potentially have to last you decades. Investopedia recommends having at least 8 times your salary saved in retirement. If you were like most Americans, earning $50,000 a year, that means you would need at least $400,000. (Plus, the cost of living is increasing yearly.)

That’s a difference of $304,224. It’s time we kick our savings into gear.

8 steps to maximize your 401(k)

While a 401 plan may not be your only choice when it comes to saving for retirement, if your employer offers one, it certainly pays to take advantage of it. Here are 8 surefire ways to make the most of your retirement savings. (We promise future you will be thanking past you.)

1. Pay whatever you can

When we look at a huge savings goal it’s easy to get overwhelmed and think “I can never save that much.” The trick is to be consistent in your savings, even if it is just a little. Consider the following: if you put away $5.00 a week starting at age 25…how much would you have in a retirement account at age 67 assuming a return of 8%. Answer: $82,353.30 Can you do $5 a week?

2. Start ASAP

If you are looking at the end result in step 1 and wondering how that’s possible, the secret is compound interest. Compound interest is when interest begins to snowball. Imagine you have $100 in an account that earns 8%. AT the end of the year, you will make $8. In year two, you are earning interested on that new balance of $108. Now, you’ll earn $8.64 at the end of the year. Repeat that for 40 years and some pretty incredible numbers start to happen. This calculator will let you play with contributions and show you how much an extra year of compound interest is worth.

3. Ask about employer match

In 2017, 42% of employers offered a 401 (k) match. This is free money.  I don’t know how to emphasize how awesome this is. The most common form of employer match is 100% on the first 6%. In plain English, this means that your employer will match every dollar you contribute up to 6% of your salary. So, in that scenario, if you make $50,000 a year and contribute $3,000 to your 401(k) your employer would contribute another $3,000 on your behalf.

4. Stay until you’re vested

Remember all that free money i was just talking about? There might be a catch. You have to stay with the company until you’re fully vested. This means that in order to actually get those matching funds, you need to stay with the company for a certain number of years. The typical vesting period is between 3 and 7 years. Depending on your companies policy, if you leave before the vesting period is up you may receive some or none of those employer matching funds.

5. Gradually increase your contributions

Going from contributing 0% of your salary to 12% can hurt. But upping your contribution by just 1% might barely be noticeable. Plan to gradually bump up your contributions every quarter, half year, or year. If you’re 30 years old contributing 6% and you commit to a 1% contribution increase every year, you will be saving the recommended 15% before you hit 40.

6. Repeat the above for your partner

Now that you have a plan for maximizing your 401(k), it’s time to repeat these steps for your spouse or partner. If both your employers match at the rate in the example outlined in step 3, that would be an additional $6,000 in free money every single year.

7. Don’t forget about your old 401(k)

If this isn’t your first job, there is a chance that you were contributing to a 401(k) at a prior place of employment. When you leave a job 401(k)s don’t automatically follow you. You have to do a “rollover.” The best way to find out if you have a 401(k) sitting around is to contact the HR department at your old job. If it turns out that you do have an old 401(k)m they should be able to provide you the necessary forms to begin the rollover. Quick note: You do have options other than rolling over the funds, however, they usually come with severe penalties. Unless you are in a dire situation most people would recommend against any other course of action.

8. Take advantage of catching up.

It’s frustrating to hear how easy hitting retirement goals are when you start at age 25, but honestly how many of us were wise enough at 25 to start saving? Not me. Luckily, the government anticipated this and you are allowed to contribute extra if you are over the age of 50. The usual 401(k) contribution limit is $18,500; however, if you are over the age of 50 you can contribute an additional $6,000, making your annual limit $24,500.

These tips don’t take long to implement. In fact, you could be able to take care of most of them with a couple emails to your HR department. Take the time right now to knock these out, because it could mean the difference of hundred of thousands of dollars in thirty years. Trust us, you’ll thank us later.

(Oh, and if you’re wondering. The 401(k) name comes from a section of the IRS code. Remember that for the next time you need to impress your trivia team.)