15 minutes that will help you retire richer

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With around 15 minutes of effort, you can set yourself up on a path to retire far more comfortably with regard to your finances than you would if you don't take this simple step. All you need to do to get started is to sign up to start contributing to your 401(k) or similar employer-sponsored retirement plan.

The beauty of those types of retirement plans is that once you get started, contributions typically continue automatically every paycheck until you shut them off or stop working for your employer. That means that once you make the effort a single time, you can potentially reap the benefits for the rest of your career -- and throughout your retirement as well.

The three things you need to know to get started

When you sign up to contribute to your employer-sponsored retirement plan, you generally need to tell the administrator three key pieces of information:

  • How much you want to contribute,
  • What you want your contributions to buy, and
  • Who your beneficiary will be should you pass away with money in the plan.

How much you want to contribute is usually either asked in terms of a percentage of your salary or in terms of a certain dollar amount per paycheck. In 2016 and 2017, you can contribute up to $18,000 per year if you're under age 50 or $24,000 per year if you're age 50 or up, though your limit may be smaller if you're considered a "highly compensated employee" at your job.

A good rule of thumb is to try to contribute at least as much as you need to maximize any match your employer offers so that you don't turn down that free money. If you're able to contribute more, then you'll simply help yourself build to either a faster or a more comfortable retirement. If you're not able to contribute even that much, start with what you can, and commit to increasing your contributions as you're able.

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8 mistakes that can sabotage your retirement
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8 mistakes that can sabotage your retirement

Mistake 1: Failing to plan for medical expenses

Medicare kicks in at age 65, but that’s not the end of your medical expenses. Fidelity Benefits Consulting estimates a 65-year-old couple who retired in 2014 will need $220,000 of their own money for medical expenses over the course of retirement. Such costs include deductibles for Medicare Part A and Part B (in-patient and out-patient insurance), and premiums and out-of-pocket costs for Medicare Part D prescription drug coverage.

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Take action:

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Mistake 2: Underestimating costs

Retirement costs can be surprising — surprisingly high, that is. You may find that to manage costs, you need to earn some extra income — not the end of the world, but possibly not what you had in mind. If you do take this path, check the Social Security Administration’s rules for working while receiving Social Security benefits.

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Take action: The good news is, in the emerging economy, it should be easier to find money-making opportunities that fit a retirement lifestyle: There are lots of jobs you can do from home, and lots of ways to earn a little money on the side. If you’re lucky, it may be something you love to do as a hobby — say gardening, tending pets, caring for children or working as a handyman. If you’re in the market for a new job, brush up your resume and skills. Check out “7 Tips to Find a Job in Retirement.”

Mistake 3: Celebrating retiring with a big purchase

No doubt you’ve got a wish list for retirement. But hold off on making major purchases at first. Instead, give retirement a spin and see what you’re spending each month.

Track expenses — every single one. A year’s tracking gives the best picture because it includes one-time and seasonal expenses.

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Take action: It doesn’t matter what tracking system you use. Just find one you like and keep it up. Keep receipts, watch bank and credit card accounts online on a weekly basis, and update your tracking regularly. Here are a few approaches:

  • Try free online budget programs. Money Talks News partner PowerWallet lets you track expenses automatically for free. It and other free money management services like Mint and BudgetTracker make money by recommending financial products and supplying coupons.
  • Pay for a program such as Quicken.
  • Do it yourself. Track expenditures manually and offline on a spreadsheet.

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Mistake 4: Helping out adult kids

Many parents set themselves up for a crisis in retirement by supporting adult children financially. A study by Merrill Lynch says 60 percent of people 50 and older are assisting adult relatives financially.

If you are a parent who gives money to an adult child, remember the following: Adult children still have time to pay off college loans and save for retirement. Their parents — in other words, you — are running out of time to save for the golden years ahead.

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Take action:

  • Make a concrete plan with goals and deadlines for gradually withdrawing financial help from your kids.
  • Discuss the changes with your kids and help them learn to budget.
  • Model financial restraint and responsibility for your kids.

For more tips, read “Still Supporting Your Adult Kids? 5 Steps for Cutting Them Off.”

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Mistake 5: Claiming Social Security too soon

Waiting to claim Social Security benefits is one of the best investments around. If your full retirement age is somewhere between 66 and 67, your benefit check could grow by 32 percent if you wait until age 70 to collect, Social Security spokesman Michael Webb said in an email. If your full retirement age is 67, waiting until 70 yields a maximum possible increase of 24 percent.

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On the other hand, about half of retirees take Social Security at the earliest possible moment — when they’re 62. U.S. News & World Report says:

Social Security benefits are reduced for workers who sign up at age 62, and the amount of the reduction has recently increased from 20 percent for people born in 1937 or earlier to 25 percent for baby boomers born between 1943 and 1954. … The reduction in benefits for people claiming at age 62 will further increase to 30 percent for everyone born in 1960 or later under current law.

This Social Security Administration table shows the reduction for taking early Social Security benefits depending on the year you were born.

Take action:

  • Go to SocialSecurity.gov’s My Account to see your estimated benefits. If you’ve paid into the Social Security system, you can create an account and pull up a statement showing what you’ll earn by claiming benefits at various ages.
  • Keep your current job if you can and delay retirement. Or get a part-time job that helps you hang on longer before claiming benefits.
  • Hire a Certified Financial Planner to review your retirement plan, income and expenses with you.

For more tips on boosting your benefits, head to our Social Security Solutions Center Page, and read “13 Ways to Get More Social Security.”

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Mistake 6: Forgetting about the tax man

The IRS won’t disappear from your life when you retire.

For instance, traditional tax-deferred retirement plans like 401(k)s and IRAs require you to withdraw a minimum amount each year beginning in the year you turn 70½. If you don’t, you could be hit with a big penalty.

You can read more about required distributions at this page of the IRS website.

​Good planning, especially before retirement, can help manage the tax bite. One strategy, Money Talks News founder Stacy Johnson says, is to roll a portion of retirement savings into a Roth retirement plan, which has no minimum distribution requirements. Roth plans require taxes to be paid before money goes in. You withdraw the funds tax-free later. The strategies you use will depend on your income now and what you expect it to be after retirement.

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Take action: Make a plan — or get expert help making one — that takes taxable retirement income into account.

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Mistake 7: Ignoring estate planning

Get your affairs in order before you’re ill or old so you’ll have control over where your money and possessions go. It’s a kindness to your heirs, too, because they won’t be saddled with the work.

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Take action:

  • Make or update your will and, if appropriate, make a revocable living trust.
  • Sign a durable power of attorney naming someone you trust to make your legal and financial decisions if you cannot.
  • Assign health care power of attorney to someone to make your medical decisions if you’re unable.

Mistake 8: Investing too conservatively

As retirement grows nearer, it seems prudent to invest more conservatively. But you could live another 20 or 30 years. Savings held too conservatively shrink because of inflation. A portion of your funds needs to grow.

“Never taking risk means taking a different risk,” Stacy Johnson says.

Take action: Learn about investing so you can be confident in taking measured risks to earn gains, even as you grow older. It’s not difficult to put up the basic rules for sane investing — how spread risk among diverse holdings, how to use index funds as a low-maintenance investment strategy, how avoid paying excessive fees and how to adjust your exposure to risk so that it decreases as you get closer to withdrawing the money.

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What you want your contributions to buy depends on how close you are to retiring, how comfortable you are with volatility, and how much more you need saved up to meet your retirement goals. In most plans, you'll have a choice between a handful of funds representing some combination of stocks, bonds, and cash. Whatever choices you make today, know that you can (and should) revisit your investment choices as your life situation and account value change over time.

Choose cash for money you'll need to spend right away. Choose short-term bonds for money you'll need to spend within the next few years -- or to preserve a portion of your wealth if you've reached your savings target well in advance of your expected retirement date.

You can also choose bonds for a portion of your longer-term savings if your fear of price volatility would keep you from a stock-heavy portfolio for those farther-away needs. Stocks and bonds frequently move in different directions, and if that trend continues, it would dampen the short-term swings in your portfolio that price shifts cause. Just be forewarned that in today's low-interest-rate environment, you'll likely have a lower overall long-term expected return from the bond portion of your portfolio.

For your longer-term money, stocks provide you a strong shot of delivering the decent long-term returns you'll need to turn what you're able to sock away today into what you'll need to cover your future costs. Just understand that while the stock market has been a great long-term wealth generator, the returns it offers come in fits and starts, and there are often multi-year periods of declines along the way. That's why money you need in the next few years does not belong in stocks, despite their long-term potential.

Who your beneficiary will be is an important decision to make when you first sign up -- and one worthy of reviewing as your life circumstances change. If you're married, your surviving spouse automatically will inherit your 401(k) unless you've named another beneficiary and your spouse signed a waiver. If you're single -- or if you've gotten the waiver signed by your spouse -- whomever you've named as your beneficiary will inherit your account, even if your will says something different.

Invest those 15 minutes now for a stronger retirement

When it comes to saving for your retirement, the more time you're actively contributing, the better your chances are of building a decent-sized nest egg. It'll likely take you around 15 minutes to fill out the electronic or paper forms to sign up and get started. By getting yourself on the path to automatic investing, those 15 minutes could very well be the most important quarter-hour of your financial life.

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Chuck Saletta has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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