10 of the easiest, most effective ways to save for retirement

By Alessandra Malito

Published: Mar 31, 2019 10:34 a.m. ET

They’ll take little effort but you’ll thank yourself later.

Saving for retirement can be overwhelming, but it doesn’t have to be.

Americans are urged to start saving early and consistently for retirement. As the country’s private workforce continues to move away from pensions and toward defined-contribution plans, including 401(k) and 403(b) plans, Americans are responsible for funding their own futures. The U.S. is on track to have elderly poverty rates unseen since the Great Depression, with nearly 20 million retirees living in or near poverty by 2035.

Of course, simply saying individuals need to save for retirement isn’t enough, and not all guidelines for how much they should have by a certain age work for everyone. And not all workers are able to set aside money for retirement because they’re having trouble balancing their financial responsibilities or because they lack access to workplace retirement accounts.

Here are 10 suggestions for efficiently saving for the future — some are almost effortless:

Set up automatic enrollment or auto-escalation

Automatically enrolling in a 401(k) plan or similar retirement account is perhaps the most advised way to easily save for retirement without thinking about it. When starting a new job, some employers give their employees the opportunity to start contributing to a plan as soon as they become eligible. That way, employees don’t have to rely on themselves to get the paperwork together — it’s all done for them, and all they have to do is decide how much of their salary they’d like to defer into the account.

Some companies also offer auto-escalation, where employees’ contributions will automatically increase each year. Retirement experts advise taking advantage of this option if your employer offers it.

The implementation of auto-enrollment and auto-escalation in the last decade might have helped retirement savers stash away nearly $30 billion, according to Shlomo Benartzi, a researcher who has worked alongside Nobel Prize winner Richard Thaler. States are starting to offer, or in some cases mandate, programs for companies to offer employees’ retirement plans that automatically enroll workers.

Make an additional payment toward loan principals

If possible, throw a little extra money toward a debt when making payments, to be put toward principal, said Bruce Colin, a financial adviser at Bruce Colin & Co. in Rancho Palos Verdes, Calif. This can be done for a mortgage, student loans or high-interest credit card debt. “It’s just another way of saving,” he said. “It’s one thing to save for investments, the other half of the puzzle is to have lower debt.” Having little or no debt means having less to spend toward those payments, and thus more flexibility to save, he added.

Pretend you still have debt payments, even when you don’t

People who recently paid off debts should continue to allocate that amount, or at least a portion of it, toward savings, said Jonathan Swanburg, a financial adviser at Tri-Star Group in Houston. “When they stop making the payments to their creditor, they either increase their other expenses or let the extra monthly savings sit in cash (which will one day get spent),” he said. “One of the easiest things a person can do to increase their retirement savings is to take the money they were once paying on debt (house, car, student loans, credit cards, etc.) and start moving those monthly payments to an investment account.”

If they haven’t already, savers should also put away money in an emergency account. Having one can deter people from stopping retirement contributions or withdrawing some of their retirement savings to fund unexpected medical or auto bills. Most Americans don’t have enough saved to cover surprise bills — 63% of Americans can’t afford a $500 emergency, and 31% of employees said they would consider taking that money from retirement plan loans or withdrawals, according to a 2018 Prudential study.

Open a Health Savings Account, but don’t use it

Health Savings Accounts, or HSAs, are meant for medical expenses, but they’re also a highly tax-efficient way to save for retirement. The accounts are part of a high deductible health plan, and funds remain in the account for as long as the employee wants. Assets are contributed tax-free, grow tax-free (just like a 401(k) plan) and are withdrawn tax-free when used for eligible expenses.

Although workers can withdraw money for medical bills each year, advisers suggest they hold off until retirement to use HSA savings. “You’re going to have medical expenses in retirement,” said Ed Snyder, financial adviser at Oaktree Advisors in Carmel, Ind. “That’s a great way to use it. Retirees can use the money for anything outside of medical expenses after 65 years old, and will be taxed just as they would a 401(k) plan or IRA. “It’s not like risking all of this money be locked up,” Snyder said.

The average couple retiring at 65 years old in 2018 could expect health care to be $280,000, which does not include longterm care costs.

Cut expenses, but don’t deprive yourself

Some financial advice around the internet has been to stop spending on daily cups of coffee, or taking less trips to restaurants, the bar or movie theaters.

Frugality can be hard. Instead of guilting themselves about spending so much, aspiring savers should jot down what they truly value — it may be that morning ritual of picking up a latte on the way to work, or weekly dinners out with a loved one. After figuring out what is important, look at the last few financial statements and see if money has been allocated toward those things, or other activities that don’t mean as much.

Other ways to cut down expenses include paying less interest by shopping around for better savings and investment accounts, negotiating certain bills like cable or rent and opting for used cars or hand-me-down items.

Make saving a game

Aaron Clarke, a financial adviser at Halpern Financial in Ashburn, Va., suggests gamifying the retirement savings process. Clarke says he likes to spend only $20 bills when he uses cash, and takes out a certain amount every month for discretionary spending. He won’t use any of the change he gets back, and instead saves it for a goal — for him, a travel fund. “I found that on average if I am using cash to buy something, it is small, so my savings rate ends up being around 35%-45% each month and I don’t have to set aside anything additional for travel savings,” he said. This strategy could help fund short-term goals, allowing individuals to focus on paying fixed bills and saving for longer-term goals, like retirement, with the rest of their income.

Saving can be rewarded, too. Some people may want to celebrate hitting a target goal or having a retirement planning session with a spouse. These celebrations and rewards don’t have to be luxurious handbags or an expensive dinner out, if that doesn’t fit in the budget, but rather a quiet night at home enjoying a glass of wine and a rented movie or a new game to play with friends and family.

Bump your contribution when you get a raise

To avoid lifestyle inflation, increase contributions to your savings when you first receive a raise, Clarke said. “Since you are already used to living on the previous amount, it does not feel like you are changing your lifestyle or making a sacrifice,” he said.

Natasha Kalas, an associate financial adviser at the Haws Falasco Group in Hinckley, Ohio, advises her clients to put half of their raise into savings. “If they got a 3% increase, they could increase by 1.5% and still feel like they are getting a raise,” she said.

Do some homework

Savers may want to brush up on some financial terms, definitions and types of accounts. Individuals with little experience or background in finance may be intimidated to get started because they’ve never done it before, they don’t trust financial institutions or there might even be a language barrier, said Mike Alves, vice president of financial planning at Marquez Private Wealth in Pasadena, Calif. They should consider meeting with a financial adviser or expert.

They could also learn about various accounts and strategies online, or from books. “The only issue is there’s a lot of information out there and it can be overwhelming,” he said.

The U.S. is lacking in financial literacy. The U.S. ranked seventh out of 15 countries in financial literacy, according to the 2017 Program for International Student Assessment, which evaluates 15-year-old students’ knowledge in science, reading, math and financial literacy. Retirees didn’t score much better in a retirement quiz. Almost 75% of Americans in retirement age failed a retirement literacy quiz, according to the American College of Financial Services, which interviewed 1,200 Americans between 60 and 75 who had at least $100,000 in household assets. Less than 1% earned an A and only 5% scored a B.

Picture your future

Aside from simply creating and planning for retirement goals, such as long vacations or frequent lunches out, savers should actually sit and picture themselves during that phase of their lives. “If you can visualize what you want you have a much greater chance of success of achieving it,” said Peter Creedon, a financial adviser at Crystal Brook Advisors in Mount Sinai, N.Y.

Not having a connection with a future version of yourself is one reason many Americans don’t save for retirement, a 2016 Prudential study found. The company calls this the “longevity disconnect bias.” In an experiment, participants reacted to rendered images of themselves a few decades older the same way they did strangers.

Just get started

Perhaps the simplest task is to just start saving, even if it’s only a few dollars. Millennials in particular say they face this problem — they’re unable to start saving for retirement because they’re paying off massive amounts of student debt, have low wages or are struggling to make ends meet with their rent and bills.

But starting early, or at any point that you’ve realized you haven’t got much saved, makes all the difference for future assets. Some financial experts suggest putting away even just $5 or $10 a month, if that’s all someone can do, to get into the habit of saving for retirement. The earlier the better, as individuals will then reap the benefits of compound interest, said Angie O’Leary, head of wealth planning at RBC Wealth Management. Even just the act of planning or running through the numbers helps. “You’re going to create better savings habits,” she said.