Bridging the Gap

Between now and your retirement date, you should aim to save and invest so that you can bridge the gap between your retirement needs and your targeted retirement nest egg. To begin, you must start saving now.

You have probably heard the adage, "Pay yourself first." Each month, as you pay your bills you should also write a check to your retirement savings account, no matter how small at first. What is important is building the savings habit. If you receive a paycheck, the easiest way may be to have an amount automatically deducted from your paycheck and deposited into a savings account specifically earmarked for retirement. Otherwise, you can have your bank regularly transfer an amount from checking into a designated retirement savings account. This account should be kept separate from other savings accounts, such as accounts set up for the children's education or for vacations.

The savings habit is a necessary one to develop--but you should not stop there. A problem that many people have is that while they may save, they don't invest. Leaving your money in a passbook account earning 1 percent while inflation is 3 percent means that your principal is actually shrinking. You need to deploy your funds into investments that will earn enough to beat inflation, pay any taxes on their earnings, and still grow and multiply. Make sure that you periodically move your savings, beyond an emergency reserve fund, to investments that will earn a good return.

See planning to reach your goals for a more detailed discussion of a process for setting and achieving financial goals (such as retirement).