Saving for retirement isn't always easy, but you will greatly improve your chances for success if you avoid some major pitfalls and make a few savvy decisions along the way.
But first you'll need to accept responsibility for your own retirement. The era of corporate pensions is over, and Social Security will only guarantee you live an impoverished old age.
You – and you alone – must build enough wealth to support yourself after you stop working. The earlier you start – and the smarter you are about saving – the better off you'll be in your golden years.
Start saving early, take advantage of free money, utilize tax-free accounts and you'll already be well ahead of the game. Now let's look at the 10 secrets to saving for retirement that will help you reach your goal.
1. Don't let savings numbers discourage you
Ideally you'll retire with enough savings to replace at least 60%, and preferably 80%, of your pre-retirement income. Our retirement calculator will show you how much you'll need to hit that mark.
It's likely going to be a shocking number.
Let's say you earn $65,000 per year and want to retire 30 years from now, replacing 70% of your income for 25 years. To do that, you'll need a whopping $2 million.
Now, just 12% of workers reported retirement savings of $250,000 or more in the 2013 Retirement Confidence Survey from the Employee Benefit Research Institute.
But don't get discouraged and quit. Something is better than nothing and Social Security income can still help you make up a shortfall.
Peter J. Laliberte, owner of Florida-based Liberty Advisory Group, says the big number should motivate you.
"I've seen too many people that don't have anything material saved and they don't have any options. Start saving young and get a plan," Laliberte says.
2. Maximize your employer's 401(k) match
If you have an employer who matches 401(k) contributions, your first priority should be to get that entire match. It's free money.
Even if your employer's plan has high fees, it's still worth it to contribute enough to get the maximum match.
Let's say you earn $50,000 per year and your employer will match 50 cents of every dollar you contribute up to 5% of your salary. That means if you save $2,500, your employer will contribute $1,250. This can add tens of thousands of dollars to your retirement fund over the years, and even more when you factor in dividends and capital gains.
Our 7 rules for a successful 401(k) can help you make all of the right decisions about your retirement plan. When you don't take full advantage of a 401(k) match, you could be walking away from a tremendous amount of money.
3. Take advantage of a Roth IRA
Whether or not you have a 401(k) through work, you should take advantage of a Roth IRA. It's one of the best savings vehicles for middle-class earners because it lets your money grow tax-free and be withdrawn tax-free in retirement.
Anyone who earns less than $114,000 a year ($181,000 for married couples) is eligible to contribute the maximum amount. Those who earn more can contribute reduced amounts. In 2014, you can contribute up to $5,500 per year ($6,500 if you're age 50 or older).
The potential to have $100,000, $250,000, $500,000 or more in tax-free money in your 60s is a huge boon to your retirement.
Another big advantage of a Roth is that contributions – but not capital gains, interest or dividends – can be withdrawn at any time for any reason without penalty. It's typically not something you would want to do. But in an extreme emergency, it's there for you.
4. Set aside as much as you possibly can
You're selling yourself short if you don't save as much as you can every year.
Most advisers say you need to set aside at least 10% to 15% to attain a reasonable level of financial security in retirement. If you can't do this now, then start small and increase your contributions over time. By doing so, you'll learn to live on less money and won't miss it as much.
Start by saving 3% of your income, then increase that by 1% every six months. In five years, you'll comfortably be socking away 13% of your income.
"People who end up with nice nest eggs are the ones who started early and made it a habit," says David Shucavage of Carolina Estate Planners in Wilmington, N.C. "Once they got into the habit of saving, they started to save more over time."
Our 401(k) calculator shows how your nest egg will grow based on your contributions.
5. Stay in stocks
The extraordinary volatility of the market in the past decade has left some people scared to invest in stocks. It's OK to be a little cautious, but it's almost impossible to save enough to retire without the power of the stock market.
You'll need an average return of 7% or 8% per year to succeed, and stocks are the only type of investment that can do that.
The market has losing years, but in the long run, stocks have historically produced a better return than other investments. You may think you're playing it safe with CDs, government bonds and money market accounts, but returns from those investments are too small.
"If you have too much volatility or risk, you reduce your risk, but you don't get out of the market. You won't even outpace taxes and inflation with CDs," says Larry Rosenthal of Rosenthal Wealth Management Group in Manassas, Va.
6. Keep it simple
The first $100,000 is the hardest to save. When you're just starting out, contributions account for most of the growth in your retirement funds. But the longer you keep at it, the more you'll earn from dividends and capital gains.
With $10,000 in your account, a 7% annual gain will net $700. But when you've got $100,000 in your account, that 7% gain is $7,000.
Beginning investors struggle by focusing too much on how they invest and what options they should choose, says Mari Adam of Adam and Associates in Boca Raton, Fla. But your primary goal should be putting money away. It's that simple.
"Just do it. Sign up for a 401(k), open an IRA and start saving money," Adam says. "You can learn about (investing) as you go."
Our savings goal calculator will show you exactly how much you must contribute to your retirement accounts to build the nest egg you want.
7. Never cash out a 401(k) when you change jobs
About half of all workers cash out some or all of their 401(k) when they change jobs. They not only have to pay taxes on the money, but they have to pay a 10% penalty to the IRS.
This is the single biggest wealth-killing mistake many workers will make in their entire careers.
If you have $10,000 in your 401(k) that you've been building up for years and just cash out when you leave your company, you might be lucky to walk away with $7,500. To preserve all of your money, you need to roll it over into an IRA or a 401(k) plan at a new employer to have any chance of saving that first $100,000.
"There are obvious and expensive tax reasons not to cash out a 401(k)," says John Piershale, wealth advisor at Piershale Financial Group in Crystal Lake, Ill. "The purpose of it is for your retirement goals."
8. Always have an emergency fund
Stuff happens. Your car can break down, your AC unit can go out, you can get sick and have hefty health insurance deductibles.
When people don't have money to cover it, they often turn to credit cards. Others resort to tapping their retirement funds – a bad idea.
That's why saving for emergencies is important to protect your financial security. You should always maintain an emergency fund to cover life's unplanned surprises, preferably enough money to cover three to six months of living expenses.
If you don’t have that much cash now put some retirement contributions on hold and start socking away money in a liquid, readily-accessible account.
"Everyone has 'emergencies' but when the money is available and saved in advance, the need for a new water heater seems less like an emergency," says John Pollock, a financial advisor from Allen, Texas.
9. Consider Social Security a supplement
A decent retirement takes a lot more than a Social Security check. Even if you're young, it will probably be there when you retire, but it's impossible to predict changes to benefit formulas, cost-of-living adjustments and how retirement ages might affect future benefits.
The Social Security Administration says the average monthly check in January 2014 was $1,184 – and that's not much. You should think of Social Security as more of a supplement to help make up a shortfall, rather than it being your main source of retirement income. This way you can stretch your dollar.
Waiting until age 70 to collect, for example, can result in almost double the monthly benefit you would have had at age 62.
"It's still going to be about 50% of retirement income for most people. You need to have a strategy for Social Security that works with your 401(k) (and other assets)," says Peter Laliberte of Liberty Advisory Group in Ponte Verda Beach, Fla.
10. Sock away your windfalls
You're likely to get a financial windfall at some point in your life. One in four Americans, for example, expects to eventually receive an inheritance, according to our recent study.
If you get unexpected money from a relative or a bonus from work, play it smart. It could provide a huge positive financial impact in your life.
Start by using it to pay down any high-interest debt you may have. Then sock the rest away.
This is one of the few ways you have to make up for all of those years when you couldn't – or wouldn't – contribute as much as you should have to your IRA or 401(k) or other investment accounts. Think in terms of what that money could be later down the line.
If you average a 7% return on your portfolio, an extra $10,000 infusion could be worth $80,000 or more in 30 years.
This article originally appeared on Interest.com.