If you are new to personal finance, you might find yourself thinking that reaching retirement is sort of like reaching a mythical place like Hogwarts. In both cases, the process required for entry is never adequately explained — and getting there yourself feels more like fantasy than reality.
While it’s unlikely that an owl will ever arrive to welcome you to a magical school, retirement is actually attainable for each and every muggle. In fact, the rules for reaching a stable retirement are relatively simple and require absolutely no financial wizardry on your part,
Here are the only six things you need to do to achieve a stable retirement — no magic wands required.
1. Always spend less than you earn
No matter how much you make, you need to live on less than you earn. This is the kind of so-simple-it-feels-obvious advice that many personal finance experts take for granted, but keeping your expenses below your income is the cornerstone of saving for a stable retirement. Many people assume that they need to make a certain level of income before they can afford to start saving for retirement, but that’s not true. As long as you always spend less than you earn, you can always save toward your retirement.
If you’re not sure how to go about reducing your expenses so that you’re no longer spending everything that comes in, start by tracking your spending. This will help you better understand where your money is going so you can cut back on unnecessary spending. (See also: Save More and Spend Less by Increasing Your “Mental Transaction Costs”)
2. Max out your retirement contributions
Both your employer-sponsored 401(k) and your individual retirement account (IRA) have yearly contribution limits that you should strive to meet every year.
The 2017 contribution limits are $18,000 for 401(k) plans (plus an additional $6,000 in catch-up contributions if over age 50), and $5,500 for IRAs ($6,500 if over age 50). The traditional versions of these investment vehicles are tax-deferred, which means you are funding your accounts with pretax dollars. Roth 401(k) plans and IRAs are funded with money you have paid taxes on, but they, like the traditional vehicles, grow tax-free.Many people can’t afford to meet the full contribution limit for their 401(k) plan, plus maxing out an IRA as well. However, getting as close to the maximum contribution as you can for both of these vehicles will put you well on your way to retirement stability. In addition, many employers offer a 401(k) contribution match — and not maxing out this kind of matching program is akin to leaving free…
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