Ten Tips For Achieving Financial Security

1. Start as Soon as You Can

It's obvious that it is better to start saving at an early age, but it is never too late to start - even if you are already close to your retirement years - because every penny saved helps to cover your expenses.

If you save $200 every month for 40 years at a rate of 5% interest, you will have saved significantly more than an individual who saves at the same rate for 10 years. However, the amount saved over the shorter period can go a long way in helping to cover expenses during retirement. Also, keep in mind that other areas of financial planning, such as asset allocation, will become increasingly important as you get closer to retirement. This is because your risk tolerance generally decreases as the number of years in which you can recuperate any losses goes down.

2. Treat Your Savings as an Expense

Saving on a regular basis can be a challenge, especially when you consider the many regular expenses we all face, not to mention the enticing consumer goods that tempt us to spend our disposable cash . You can guard amounts you want to add to your nest egg from this temptation by treating your retirement savings as a recurring expense, similar to paying rent, mortgage or a car note. This is even easier if the amount is debited from your paycheck by your employer. (Note: If the amount is deducted from your paycheck on a pre-tax basis, it helps to reduce the amount of income taxes owed on your salary).

Alternatively (or in addition), you may have your salary direct-deposited to a checking/savings account and have the designated savings amount scheduled for automatic debit, to be credited to a retirement savings account on the same day the salary is credited.

3. Save as Much as You Can in a Tax-Deferred Account

Contributing amounts earmarked for your retirement to a tax-deferred retirement account deters you from spending those amounts on impulse, because you are likely to face tax consequences and penalties. For instance, any amount distributed from a retirement account may be subject to income taxes the year in which the distribution occurs, and if you are under age 59.5 when the distribution occurs, the amount could be subject to a 10% early-distribution penalty ( excise tax ).

If you have enough income, consider whether you can increase the amount you save in tax-deferred accounts. For instance, in addition to saving in an employer-sponsored retirement plan, think about whether you can also afford to contribute to an IRA, and whether the IRA should be a Roth IRA or a Traditional IRA .

4. Diversify Your Portfolio