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Saving 1 percent a year is
just not going to cut it

HOW much money should you be saving for your retirement? While there's no one right answer for everyone, most financial experts recommend that you put away at least 10 percent of your pretax income every year. Unfortunately, your fellow Americans are not exactly hitting that 10 percent mark; in fact, in 2004, the personal savings rate hovered around 1 percent.

If your name is Bill Gates, saving 1 percent of your pretax income each year would result in quite a nice retirement lifestyle. Sadly, for most of the rest of us, a 1 percent savings rate is probably not going to do it. Consequently, you'll want to ratchet up your savings as much as possible.

How? For starters, figure out how much you actually are putting away. Add up your contributions to your employer-sponsored retirement plan (including employer matches), IRA contributions and any retirement savings you put in your regular taxable accounts.

If you determine that you're not saving 10 percent, don't panic. You may have many years to go until retirement; if so, you can still get back on track. Even if you are within a few years of retirement, you can do a lot to help your cause. In either case, here are a few suggestions to consider:

» Increase 401(k) contributions when you get a raise. If you have a 401(k) plan, you've already got a retirement savings vehicle working for you. Your money grows on a tax-deferred basis and you typically make pre-tax contributions, which can help lower your taxable income. To boost your overall retirement savings rate, increase your 401(k) contributions each time you get a raise. In 2005, you can put in up to $14,000 to your plan, or $18,000 if you are 50 or older. (You can also put in the same amount to a 457(b) plan, if you work for a state or local government, or a 403(b) plan, if you work for a non-profit organization.)

» Max out on your IRA. Make a determined effort to contribute the maximum amount to your traditional IRA, which offers tax-deferred earnings growth, or your Roth IRA, whose earnings grow tax-free, provided you meet certain conditions. In 2005, you can put in up to $4,000 to either of these IRAs, or $4,500 if you are 50 or older.

To help your savings grow even faster, try to put in your full IRA contribution as early in the year as possible; this will enable you to take advantage of the power of compounding. But if you can't afford to put in all the money at once, make monthly contributions.

» Pay yourself first. If you're saving money for retirement in a taxable brokerage account, contribute whatever you can on a regular basis. Of course, it's not easy to put aside money for investments after you've paid the mortgage, car payment and all your other expenses. That's why you should "pay yourself first" by setting up a bank authorization to move money automatically into the investment vehicle you have chosen.

By following these strategies, you may or may not reach that 10 percent personal savings rate. But at the very least, you'll boost your retirement savings considerably -- and that's a 100 percent positive move.