5 Secrets to Make Saving for Retirement Easy

Saving for retirement terrifies most Americans, but the process can be easy and painless if you just make some savvy financial decisions during your career.

Saving for retirement terrifies most Americans—mostly because they’re well behind. However, the process can be easy by making savvy decisions.

Many people underestimate how much they need for retirement, either because they forget about inflation, expect they’ll be able to live with less than they can, don’t adequately prepare for health care expenses or outlive the savings they did plan. Social Security will only pay for so little and many companies have done away with the pensions that previous generations relied so heavily on.

Future retirees can really only rely on themselves to provide in retirement, and Interest.com recommends starting early if you don’t want to live with financial regrets in retirement. The personal finance website has come up with the 10 secrets to successfully save for retirement so you can make the right decisions and avoid the big mistakes.

Here are 5 to consider:

5. Never cash out a 401(k) when you change jobs

Cashing out before retirement, even because of a job change, subjects savers to federal and state taxes, plus a 10% penalty for early withdrawal. Fidelity Investments just discovered that more than a third of people cashed out when they left their job in 2013. Those between the ages of 20 and 39 were the biggest culprits. Anyone who cashes out forfeits years of potential investment growth.

According to Interest.com, cashing out a 401(k) when you change jobs is the “single biggest wealth-killing mistake” of many people’s careers.

Instead of cashing out, roll those retirement savings into the 401(k) at the new employer or into an IRA.

4. Take advantage of a Roth IRA

Speaking of IRAs, Interest.com recommends it for middle-class earners because there are income limits that could affect your eligibility. Individuals making less than $114,000 a year ($181,000 for married couples) can contribute the maximum amount, which is $5,500 a year in 2014. If you’re 50 or older, then you contribute $6,500.

These contributions to a Roth IRA should be made in addition to your 401(k) through work. As for that plan, if your employer matches contributions, then it should be a priority to get that entire match, according to Interest.com. That money can add at least tens of thousands to your retirement over the years.

3. Save those windfalls

Getting a big tax refund? Hit a small jackpot? Inherited a large sum of money? According to Interest.com, it’s very likely you will get a financial windfall at some point since a quarter of Americans expect to receive an inheritance.

Play it smart and sock away your windfalls.

It might be tempting to see the cash as free money you can use to splurge on vacation, but if you use the money right, it can make a huge positive financial impact. Use it to pay down high-interest debt and then save the rest.

The Boston College Center for Retirement Research has reported that two-thirds of baby boomers will inherit a total of $7.6 trillion in their lifetimes. And yet, 9 out of 10 family fortunes will be gone by the end of their children’s lives.

Don’t squander that money.

2. Stay in stocks

The stock market is volatile, that’s why many Americans don’t even want to put their money in stocks if they can avoid it. But stocks are really the only investment that will provide an average return of 7% or 8%, according to Interest.com. You won’t beat inflation by keeping your money in cash.

Don’t expect any short-term miracles, though. As we’ve seen, the market can lose big money in just a year or two. But stay in for the long haul and you’ll beat every other investment out there—especially if you’re in a passively managed fund instead of an active one.

1. Don’t get discouraged

Physicians currently making in over $200,000 should be prepared to save at least $5 million if they want to retire comfortably and continue living their current lifestyle. That’s a lot of money and can be very disheartening at the beginning of a career. Why so much? Experts recommend saving enough to replace 80% of your pre-retirement income (or at least 60%).

There’s a good reason not to get discouraged by such a large nest egg: Social Security income will take care of some of it (though, you should consider it the ‘gravy’ on your retirement plans), plus compound interest on your savings will start to add up after 30 years. Interest.com also points out that the longer you keep at it, the more you earn from dividends and capital gains if you’re investing.

See the full list here.