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How to Set a Realistic Retirement Savings Goal

It's intimidating to realize that you might need to save $1 million or more in order to fund a comfortable retirement. A large retirement savings goal can feel unreachable and reduce your motivation to save every month. It's often more productive to set short-term savings goals so you can celebrate your progress as you accumulate wealth. Here are some attainable retirement savings goals to try:

A monthly or annual amount. Instead of focusing on a final account balance, aim to set aside a specific dollar amount every month or for the year. "A lot of people get intimidated by the large numbers, but if you are starting to save early in your early-to-mid-20s and you experience even a modest investment return over the course of your career, you are letting compound interest do most of the work," says Jennifer Harper, a certified financial planner and owner of Bridge Financial Planning in Chattanooga, Tennessee. "It's helpful to set more of an annual goal." You could start with a relatively small amount if you need to, but then aim to increase it each year or every time you get a raise. Consistently saving a small amount of money can be enough to accumulate an impressive nest egg if you give it enough time to grow.

[Read: How to Become a Millionaire by Retirement.]

A percentage of your salary. Many 401(k) plans are set up so that you select a percentage of your salary to contribute to the account. Saving a proportion of your income means you will automatically save a larger dollar amount as your paychecks grow. Some companies automatically enroll new employees in the 401(k) plan at a default savings rate, which is often 3 percent of their salary. However, most financial advisors recommend saving more than this. "Try to save 10 to 15 percent of your income if you possibly can," says Charles Malsbury, a certified financial planner for ThinkPlanSave in Daly City, California. "If you can only save 3 percent this year, try to go up another 2 percent next year. Some companies also have automatic escalation policies that will boost the percentage of your pay you save over time. It's a good idea to review your savings rate at least once per year, perhaps during open enrollment, as you set New Year's resolutions in January or at some other annual milestone you can easily remember.

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[See: How to Max Out Your 401(k) in 2017.]

Enough to get a match. If your employer offers a 401(k) match, aim to save at least enough to get the full company contribution. "Not saving up to the point when you get that full match is just leaving money on the table," says Kartini Shastry, an economics assistant professor at Wellesley College. For example, if your employer provides 50 cents for each dollar you save in the 401(k) plan, you have just earned a 50 percent return on your investment. Dollar-for-dollar company contributions allow you to quickly double your retirement savings. However, pay attention to your 401(k) plan's vesting schedule when you make job change decisions. Find out how long you need to stay at the company before you get to keep the 401(k) match when you leave the job.

[See: 10 Tax Breaks for People Over 50.]

Maximize the tax break. The federal government provides tax incentives to save for retirement that will help your savings grow faster. "Make sure that you are maximizing every type of tax-deferred or retirement account that you possibly can," says Helen Berenyi, a certified financial planner and president of the wealth management firm Red Triangle in Charleston, South Carolina. You can defer paying income tax on up to $18,000 in a 401(k) and $5,500 in an IRA. For those age 50 and older, the contribution limits climb to $24,000 in a 401(k) and $6,500 in an IRA. Some workers can save in both types of retirement accounts in the same year if they meet the income requirements. Alternatively, you could contribute after-tax dollars to a Roth IRA or Roth 401(k) and set yourself up for tax-free retirement income. Roth accounts are often a particularly good deal for young people and those who are currently in a low tax bracket. "If you hit a home run in your Roth, you never pay taxes on it ever again," Berenyi says.

Emily Brandon is the author of "Pensionless: The 10-Step Solution for a Stress-Free Retirement."



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