The Critical Strategy I Used to Bolster My Retirement Savings

There is a variety of retirement saving strategies that people and professionals use to prepare for their golden years. Some work out; others not so well. One strategy that I've found that works well for me, not only when it comes to retirement savings but for life in general, came from my grandfather. He always used to say, "Work first, play later."

I have tried to apply this technique to my retirement savings in an effort to gain a better footing when it comes to planning and preparation, and in doing so, have tried to break this strategy into two separate phases that have been critical to my efforts.

Starting Early

Sure, you're always hearing that you need to start saving early for your retirement, but many people don't really understand what this means and what it can do to increase their retirement savings. And how many people can actually force themselves to do this at age 20 or 25?

Many of the examples out there of time increasing retirement portfolios by hundreds of thousands of dollars are in my opinion unrealistic and based largely upon wishful thinking. For many of us, I think averaging 8% annual returns on our investments is a pipe dream. However, in my strategy, this fact can't and didn't deter the putting of money away early in my career. I knew that even at a paltry three or four percent, that money -- if left untouched -- would continue to grow and work for me, and would give me more time to recover from my mistakes, missteps and market misfortune.

I also understood that that money stashed earlier -- albeit at a lower interest rate -- would have a greater impact over time than money saved later in life at a higher rate.

For example:

$10,000 invested at a 3% interest rate for 35 years would grow to an amount of $28,138.25.

Meanwhile, $10,000 invested at double that rate -- a 6% interest rate -- for 10 years would result in growth to an amount of only $17,908.77 and even at an 8% rate would only result in $21,589.25.

Ditching Debt

But starting early and saving hard, even at higher investment returns would make little difference if my progress was negated by paying upon debt; especially debt with higher interest rates. What is the point of putting money away, even at 8% when you're paying 18% on credit card interest? You're pretty much just losing 10% on the deal.

I recognized as part of my retirement savings strategy, that getting things like student loan debt out of the way early on could further my retirement savings efforts and increase the growth potential of the money I put away. This meant that even though my student loans were only at around a 6% interest rate, if I chose to put any money away, I would have to beat that rate to be making any real progress. Therefore, I threw all my efforts toward eliminating that debt as quickly as possibly so that I could in turn focus more of my attention upon my retirement efforts.

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Disclaimer:

The author is not a licensed retirement or financial professional. The calculations and information provided in this article is for informational purposes only and does not constitute legal or financial advice nor has it been verified by a financial professional. For financial advice, readers should consult a licensed financial advisor. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion. The calculations in this article have not been varified by a certificed financial planner or financial professional.