The biggest challenge of saving for retirement is that when retirement is 20 or 30 years away, it doesn’t seem like that big of a priority. It certainly doesn’t loom as large as your day-to-day financial responsibilities. And during those months when you have more expenses than you have money to cover them, you may feel like you have no choice but to tap into your retirement savings.
What too few people realize is that when you take a nibble out of your retirement account, it can become a Jaws-sized chomp by the time you retire. That’s because the money you withdraw loses all of its potential to grow. If you take out $3,000 out now, and your remaining savings grow at an average rate of 7% a year, then you will have cost yourself $11,600 in 20 years.
So how do you avoid the temptation to tap your nest egg? Here are some simple and (mostly) easy steps you can take.
Automate your savings
The more automatic and hands-off you can make the saving process, the less likely you are to mess with it later. Setting up an automatic transfer from your checking account to your retirement savings account is a good idea. Having an automatic payroll deduction that takes pre-tax salary and puts it into your 401(k) is even better.
Have other emergency funding
If you have another source of emergency income to turn to, you won’t feel driven to tap into your retirement savings when your car breaks down or you need a root canal. The best source of emergency money is a dedicated emergency savings account. However, if you don’t have such an account, or if it doesn’t have…