Tips for Super-Sizing Your Retirement Savings

Much has been written lately about the changing nature of retirement. For some, retirement means continuing to work in some form--whether by choice or necessity--while for others it may mean quitting at age 65 (or thereabouts) to enjoy something approaching a life of leisure. But whatever one's expectations about retirement, there is no substitute for advanced planning, and the earlier one starts the better.

This week on Morningstar.com, we'll be exploring the keys to a successful retirement, and of course one of the most important things investors can do to prepare is to save as much as possible. We asked readers to share their tips for saving more for retirement and responses generally focused on ways to save more and/or to spend less. Readers mentioned common approaches such as maxing out 401(k) contributions and saving on housing and cars, but with a few creative wrinkles thrown in along the way. The full discussion, which can be found here, included the following reader comments.

Pay Yourself First
Many readers mentioned the virtues of "paying yourself first" by contributing as much as possible to 401(k) and IRA accounts.

"Our secret was simple. We saved!" wrote DrBobb. "We lived on my salary and saved my wife's salary. We fully funded our 401(k)s, saved my bonus, and saved my stock awards." 

"Save aggressively," advised LJones. "Between retirement account contributions, college savings, a health savings account, and taxable savings our goal is to put away between 35% and 40% of pre-tax income every year. Much of that is earmarked for retirement."

Several readers described systems they've used to ramp up their retirement savings. For example, BillInGA said, "We would save 50% of any raises we got by upping our 401(k)/403(b) withholding. We never missed the money and still got the other half in our checks. Seemed like a win-win."

Some retired readers shared stories about how starting to save from an early age made a huge difference in the size of their nest egg.

"After college graduation in 1969 to start work for IBM Research, my father's parting advice was to work hard, keep my nose clean, live within your means, and save 10% of your income for a rainy day and retirement," WHKred wrote. "My first year salary was $10,000. From initial paycheck to retirement in 2012 I put 10% of every paycheck into the stock market. ... In addition, our strategy was to split any extra money (bonuses, tax refunds, gifts) into thirds--one-third to pay off debt, one-third was invested, and one-third was spent. ... My wife and I now are living the life of Riley with a substantial six-figure (primarily dividend growth) income. Thanks, Dad."

For some readers, paying off the mortgage ahead of time was key to living more comfortably once they stopped working.

"Plan to pay off the house by the time you retire," urged Seawolfe. "It's amazing what that does to the calculations for how much you will need."

Another reader, MadScientist, suggested that saving for retirement doesn't have to end once one stops working.

"Even though I am retired, I am still 'saving' for retirement by doing conversions from my [traditional] IRA to my Roth IRA," MadScientist said. "I convert just enough each year to stay within the 15% tax bracket (thus allowing for 0% taxes on qualified dividends and long-term capital gains). Paying the taxes on the conversions now at 15% frees me from having to pay again in the future, and it reduces the amount of money subject to required distributions."

Other readers also sang the praises of the Roth IRA. RalphN said he uses one to save above and beyond what he puts into his company retirement plan.

"If you can, max out your 401(k), putting in both before- and after-tax money. Set up a Roth account and get money into that account and as much as possible. You can back-door fund it with the 401(k) money you put in after taxes," he wrote.

Different Takes on Saving
Some readers mentioned taking advantage of other employer benefits to help make their retirement savings grow even faster.

Proxysteve wrote, "I do the standard stuff: max out 401(k), maximum Roth contribution when eligible, auto-invest to taxable accounts each month. I have one trick: max out my employee stock purchase plan (ESPP). This gives us a minimum 15% return over six months, but also sets a limit [on] our paycheck. Limiting our paycheck keeps us from overspending. Knowing that we can cash out those ESPP [shares] every three months keeps us sane even if we are living on the edge (cash-flow wise) month to month. ... Granted, we are fortunate enough to make enough to do all these, but these are things we added gradually over time as our income went up and we tried to continue living as if we still made less."

One of the more creative comments regarding the importance of retirement saving--and compounded returns--came from shongdi, who wrote, "Every dollar you get is a dollar that can earn another dollar and every dollar you earn is another dollar you can get. Why buy anything when you can amass an army of dollars making dollars? This is how you stop going to work and become the general of your dollar army."

Another reader offering up a unique take on the question of saving more for retirement was Sookegary, who argued that super-saving alone isn't enough.

"I completely agree with all the comments made so far about saving but there's also the other side of the equation: Try to make more," he said. "When I joined a large corporation they were rather lax about reviews, promotions, raises. I knew exactly when my reviews were due and wasn't afraid to remind HR when necessary (and it was necessary). Work smart and get promoted. If you're hourly, work overtime."

'Learn to Live Below Your Means'
Of course, saving more often requires spending less, and readers had no shortage of tips about how to do this. Among the most common was advice offered by cgjgeoman, who wrote, "Learn to live below your means. When you get a raise put a substantial portion towards retirement. Don't buy more house than you need or new cars. Learn the difference between wants and needs. Spend on the needs and skimp on the wants. Much boils down to save, save, save and delayed gratification."

Carrie was another who mentioned keeping housing costs under control.

"Don't overbuy on your house," she advised. "There's enormous pressure to keep up with the Joneses and buy a home in a nice area, but in a lot of cases the Joneses don't have any savings to speak of--retirement, emergency fund, or otherwise. If you buy the house in the expensive neighborhood, you have ongoing pressure to keep up with your neighbors in other ways (cars, yard work, nannies, housekeepers). I bought a nice house in a less-than-desirable part of town. I've kept up my retirement savings, and I don't live in fear that I won't be able to make payments if something goes wrong (like a layoff)."

For GregLee, buying a house itself was part of his retirement-savings plan. "It was easier to observe the discipline of paying on the mortgage every month than it had been to save that money," he said.

Of course, not everyone starts saving for retirement as soon as they get their first paycheck. Winecracker recalled playing catch-up when it came to building a nest egg.

"Didn't start saving until we were 35. Then we maxed out 401(k) accounts, added extra to regular IRAs and Roth IRAs as we could. But mostly we lived below our means while watching our friends save little but live large," winecracker said. "We pretty much did what we wanted, kept our cars for nine years or more, lived in a modest home and are well-traveled. We're retired and most of our friends are still working because they have to."

Retiredgary was another reader who found that living below his means would pay off one day.

"Our biggest single good step was to decide when we both got promotions and large increases in pay in the decade before we retired that, since we were happy with the way we were living, we would keep living mainly that way and invest most of the new income. That really helped to make early retirement possible," he said. 

Even small savings gestures can make a difference in retirement planning, readers said. Dipcone13, for one, shared this helpful tip: "We cut our cable cord and send the extra $150 to our IRA account every month. Boy, does it add up in savings!"

Of Marriage and Motivation
One surprising topic of conversation among retirement savers was the importance of marrying someone who shares your financial philosophy and goals.

"The key to saving extra money for retirement is marrying a like-minded person," wrote Emily17. "My husband and I live like many of our Generation Y members are living: sharing one economical car, cooking at home, learning to enjoy each other's company instead of spending for fun, and making do without the latest electronic gadgets. But we're doing it by choice instead of by necessity. We greatly admire those who financially balance it all: a mortgage, a family. We have none of these things by choice. We love each other, but we save our money because ultimately money is freedom. We plan to sail off into the sunset together as early as possible."

Mysticaltyger said looking in the mirror is essential to guiding one's retirement-savings decisions.

"The secret is you need some kind if inner motivation to want to save for retirement," the poster wrote. "The general underlying motivation usually has to come [from] a desire for flexibility and freedom to do what you want with your time without having to worry about where your next meal will come from. Once you have the inner motivation, then it's easier to save in the retirement account and also easier to say no to the more expensive apartment/house and the newer, nicer car when the old one still runs fine."

As gratifying as saving for one's own retirement can be, helping others do the same also feels good, said Rick1234.

"Yes, we max out all the available choices for retirement to the fullest extents. That's an easy choice as we live way below our means, so totally un-American I know," he wrote. "But at Christmas, my children get electronics and the latest goodies from my wife and I give them each a contribution into their Roth accounts and I direct them [toward] what stock to purchase with each year's contribution. They are both in their early 20s and they have been investing for years. My oldest daughter is very analytical and now uses Morningstar to pick her own stocks. I also offer a 50-cents-on-the-dollar match if they contribute their own money to their Roths." 

Comments have been edited for clarity and brevity.