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 money on the table. (See also: How Much Should You Have Saved for Retirement by 30? 40? 50?)
3. Work at least 35 years
While retiring early is a common dream among many workers, leaving the workforce before putting in 35 full years of employment could damage your bottom line in retirement. That’s because your Social Security benefits are calculated using the 35 highest earning years in your career. If you have less than 35 years of work experience, the Social Security Administration uses zeros to create your benefit calculation, lowering your average earnings and your payout. If you don’t have 35 years of employment history, it’s a good idea to keep working to get those zeros replaced in your Social Security calculation.
Doing whatever you can to increase your monthly benefit will make a big difference in your bottom line once you retire. The most important increase you can make is to work at least 35 years total — although waiting as long as you can to take Social Security benefits is also an important strategy for increasing your monthly Social Security check. (See also: 6 Smart Ways to Boost Your Social Security Payout Before Retirement)
4. Avoid debt
We live in a society that tells us we can have it all right now and pay for it later. The problem is that we will indeed pay for it later — with an impoverished retirement. While it may be possible to finance the lifestyle you want with debt, you will have no money available to save for retirement or otherwise invest. In addition, the added interest expense of borrowing money to pay for your lifestyle just makes it that much more expensive and unsustainable. (See also: 5 Ways to Pay Off High Interest Credit Card Debt)
5. Invest for the long-term with index funds
While the movies show investing as a kind of game that you win by figuring out when to buy low and sell high, the best way to make sure your money grows is to follow a long-term buy-and-hold strategy.
A 2016 DALBAR study on investment behavior revealed that investors routinely underperform the market despite solid annualized returns. For example, at the end of 2015, the S&P 500 was averaging a return of 8.19 percent. That same year, investors saw returns top out at a measly average 4.67 percent — and this pattern is not new. Why such a discrepancy? Simple; rather than employing a buy-and-hold strategy, investors routinely try (and fail) to time the market. Year after year, their returns suffer as a result.
You can use statistics and a long investment term to your advantage by investing in index funds. These funds aim to replicate the movement of specific securities in a target index, which means an index fund is going to do about as well as the target securities will do. (See also: Want Your Investments to Do Better? Stop Watching the News)
6. Take care of your health
Your health can have an enormous impact on your financial stability in retirement. That’s because health care costs are a major concern in your older years, especially since this is one aspect of your retirement budget that you may not have control over. According to a 2016 Fidelity study, a 65-year-old couple retiring in 2016 will need about $260,000 to cover their medical and health care costs for the rest of their lives.
While kale smoothies and daily kettlebell workouts cannot ensure your good health in retirement, taking good care of yourself throughout your life does improve the odds that you’ll stay healthier as you age. You can consider each jog and healthy meal as an investment in your future. (See also: Don’t Let Poor Health Kill Your Retirement Fund)
Reaching retirement, one step at a time
Achieving a stable retirement doesn’t require any magic. Instead, it’s a matter of following some simple rules that will ensure you have the money you need to retire comfortably.