This is the best retirement planning move I have ever made

Saving for retirement involves a series of choices. You need to decide which retirement accounts to use and how much to contribute each month. You need to choose a Social Security claim age and determine how much you can safely withdraw per month in retirement. You also need to decide how to invest your money and figure out when you can afford to retire.

There are lots of moving parts and they all contribute to the whole. This can make it difficult to identify the decisions that affect your nest egg the most. But in my case, I know that one thing I did in particular went a long way toward improving my retirement preparation.

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Starting early made my job much easier

I graduated college a year earlier than most and it gave me a slight head start on my career. This helped me gain valuable experience and allowed me to start saving for retirement quite young.

I opened a Roth IRA when I was just 20 years old. In the early years, I couldn’t contribute that much. There were even times when I couldn’t contribute anything because my salary wasn’t that high and I had other financial goals to save for. But every time I had the chance, I stashed away some money for the future.

All told, my contributions since my early 20s probably only amounted to a few thousand dollars. At the time, it was just enough to cover a few months of living expenses, tops. But that was then.

This money has already been invested for over a decade and has grown quite a bit. Even better, they probably have another three decades to stay invested before I have to touch it.

$5,000 invested over 40 years and earning an average annual return of 8% over that time will be worth over $108,000 when all is said and done. Most people could live off of that for a few years while on Social Security.

My later retirement contributions will also grow in value, but probably won’t grow as much as those few early contributions simply because they won’t be invested as much. I rank those first Roth IRA contributions I made as one of the smartest retirement planning moves I ever made.

How to build the habit of saving for retirement

If you’re already saving regularly for retirement, that’s great. If not, start as soon as possible. Even if you can only save a few dollars a month, it’s still worth doing.

The only time it’s not a good idea to prioritize retirement savings is if you can’t pay your bills that way right now or if you have high-interest debt. In the latter case, paying it off before moving into retirement savings is best to minimize the interest you’ll owe your creditors.

If you haven’t already done so, determine how much you need to save for retirement. Once you have a monthly savings target, try to get as close as you can. Those who can’t save as much as they’d like now should be proud to save what they can and aim to increase their contributions whenever they get a raise or by 1% of their annual salary. That’s just $50 more per month for someone making $60,000 a year.

Even following the steps above, saving enough for retirement can still be a daunting task. So be prepared to adapt along the way. You may have to rethink your retirement timing or stay part-time in the workforce indefinitely to make ends meet if you can’t save as much as you’d like.

On the other hand, if you can save a lot of money for retirement, keep in mind the annual retirement account contribution limits and, for Roth IRAs, the income limits. Exceeding them can trigger expensive tax penalties. Also, remember that contribution limits increase over time, so you may be able to set aside more money for retirement in later years.