Americans’ biggest financial regret appears to be getting bigger.
Bankrate’s latest survey on the subject found that 22 percent of Americans name not saving for retirement early enough as their top financial regret. That’s up from 18 percent one year ago. Last year, Americans also said a lack of such saving was their top financial regret.
The second-biggest financial regret — not saving enough for emergency expenses — is also growing. It was cited by 16 percent of survey respondents, up from 13 percent last year.
With such similar regrets topping Bankrate’s list again this year, let’s go back to the basics of saving money. Three golden rules that apply if you want to avoid similar regrets are:
1. Save early and often
Starting to save money early is critical because it’s the only way to harness the power of both compound interest and time, which are your greatest allies in building savings.
As we reported in “Money Lingo You Need to Know for Financial Survival“:
“Compound interest is interest that’s earned and added to an account balance so that the interest, too, earns interest. Compounding speeds up earnings because, as your account balance grows, each new interest payment is based on a larger amount.”
Make it a habit to set aside savings as soon as money comes in. For example, every time you receive a paycheck, set aside a bare minimum of 10 percent of it for retirement. Ideally, you will automate this process so that money is automatically transferred from your bank account to your retirement account on, say, the 1st and 15th of every month.
This practice is often referred to as “paying yourself first” — and it’s our first tip in “7 Ways to Make Your Savings Grow Faster Automatically.”
2. Stash cash in a matched 401(k) if you can
The best place to stash your savings is a 401(k) account from an employer that matches your contributions. If you’re fortunate enough to have one, always contribute at least as much money as it takes to get your employer’s full match. Otherwise, you’re passing up free money.
We explain this further in “Confused by Retirement Accounts? Roth, Regular IRAs and 401(k)s Made Simple.”
3. After a 401(k), move on to other tax-sheltered accounts
A savings account is fine, and a high-yield savings account is great for nonretirement savings like emergency funds. But these are not good places for your retirement savings.
To maximize your retirement savings, you want to invest them in an account that is tax-sheltered or tax-advantaged, meaning it offers tax benefits that nonretirement bank and brokerage accounts can’t offer. Examples of tax-advantaged accounts include:
- Traditional individual retirement account
- Roth individual retirement account
Like a 401(k), these accounts are only available through employers — except for IRAs. So if your employer does not offer a tax-advantaged savings plan, an IRA is the best place for your retirement savings.
To learn more about the differences between traditional and Roth IRAs, check out “5 Reasons a Roth IRA Should Be Part of Your Retirement Plan.”
What’s your biggest financial regret? Let us know why by commenting below or on our Facebook page.