Building Your Nest Egg With 10% Of Your Annual Salary

The Employee Benefit Research Institute shows us that almost half of all baby boomers nearing retirement will not have enough of a nest egg for their retirement, and be unable to afford the minimum of luxuries and some basic expenses such as utilities and food. This requires you, the future retiree, to take drastic steps in allocating funds for retirement, such as investing ten percent of your salary into an IRA or 401K plan.

It's needless to say that even if you're more than a decade away from retirement, time's already running short. Although putting away ten percent of your salary may seem almost impossible, there are ways to make it happen. For instance, if a company contributes a certain amount based on what you contribute (also known as "matching" money), you'll essentially receive free money from your employer when you put in your savings. Your boss might give a three percent match to your seven percent, which also gives you a reward in the form of a tax break.

Typically, this method of saving up for retirement is recommended for those in their twenties, as the longer contribution duration means less pressure, and a higher chance at obtaining an adequate nest egg. If your first job doesn't pay as much as you'd like and allow you to save the necessary ten percent, you can always make up for lost time. However, the larger the delay, the more pressure you'll be under.

It's always good to err on the side of caution, especially with your retirement savings. If you've gone beyond saving the ten-percent minimum, and were able to save around a dozen times that of your last salary prior to retirement, you're relatively safe. There's a better chance your funds won't get depleted, as long as you don't go overboard with your budget when you're officially retired. Based on this figure, experts recommend that you withdraw a maximum of five percent of your retirement funds during your initial year of retirement. For the following years, you should only withdraw a little extra to cover for the effects of inflation.

If you follow this method of saving up for retirement, it will give you a good chance of accumulating a nest egg that will last longer than you will. Aside from practicing good budgeting and a relatively austere lifestyle, you can make stable investments before and during your retirement. Find these investments with the help of your retirement planner or financial advisor.