Despite the fact that most (if not all) of us hope to one day retire comfortably, the majority of Americans aren’t doing a very good job of saving for retirement.

In fact, the average American family only has about $5,000 set aside in their retirement fund.

Whether retirement is just around the corner or decades away, it’s important to take your financial future into your own hands and start saving money for retirement. And, if you are saving, it’s important to make sure you’re putting money aside in a way that will allow you to reap the greatest benefits later on.

Read on to learn about seven of the most important things you need to know about saving for your retirement.

1. You’re Never Too Young to Start Saving Money for Retirement

Many young people make the mistake of thinking that it’s too early for them to worry about saving for retirement. In reality, though, it’s never too early to start planning for your future.

Remember, too, that the earlier you start saving, the better off you’ll be later on.

For example, if you’re 22 years old and earn $40,000 per year, putting just 10 percent of that into a 401(k) could yield over a million dollars in savings by the time you retire at age 65. That’s not even taking into account future raises or increases in contributions.

2. You Shouldn’t Rely on Social Security

Some people also mistakenly believe that Social Security benefits will take care of them when they’re older. If social security is your only form of retirement savings, you’re taking a pretty big risk.

It’s anticipated that Social Security requirements will exceed contributions by the year 2037. That’s long before many millennials will retire. This means that your chances of reaping any benefits from your Social Security payments are slim-to-none.

There’s a good chance that there will still be some sort of government-provided income after Social Security runs out. But, you shouldn’t hang your hat on that possibility. You need to a backup plan and take charge of your financial future.

3. An IRA is a Great Idea

Many people assume that the only type of retirement account available to them is a 401(k).

This definitely isn’t the case, though. An IRA (individual retirement account) is another great option, especially for people who are self-employed or whose employers don’t offer retirement benefits.

A traditional IRA is very similar to a 401(k). When you put money into it, you can deduct that money from your federal income taxes. But, you’ll pay taxes later when you take the money out.

A Roth IRA is just the opposite. There are no tax deductions now. But, when you retire, all your withdrawals will be tax-free.

If you’re not sure which option is right for you, a company like American IRA can help you decide.

Just keep in mind that the IRS sets a limit on the amount you can contribute to a traditional IRA. Currently, the contribution limit for savers under 50 is $5,500.

4. You Can Have an IRA and a 401(k)

Even if you have a 401(k) plan provided by your employer, you can also open an IRA at the same time. This will allow you to save even more money for retirement.

A good strategy for managing your IRA and 401(k) is to contribute the maximum amount that your employer will match to your 401(k). Then, also max out your Roth IRA contributions ($5,500).

If you still have more money to save, you can always contribute more to your 401(k), just keep in mind that it won’t be matched.

5. IRA Withdrawals Come at a Cost

The whole point of an IRA is to put money aside and not touch it until you’re ready to retire. But, if you find yourself in a bind, the money you’ve been saving can start to look pretty enticing.

Before you convince yourself that cashing out is a good idea, remember that there are very specific rules you need to follow when it comes to IRA withdrawals.

If you withdraw before you turn 59 1/2, the IRS requires you to pay federal income taxes on that money. You’ll also have to pay a 10 percent early-withdrawal penalty.

There are only two exceptions to this rule. First, you can withdraw penalty free to cover the cost of higher education. You can also withdraw up to $10,000 penalty-free in order to purchase your first home.

6. You Should Diversify Your Investments

When it comes to investing, most people don’t really know what they’re doing. As a result, they end up putting all their eggs in one basket.

Remember that diversification is your friend. Diversification helps you get better returns and build up a better nest egg. You also subject yourself to higher risk without necessarily increasing your chances of better returns.

7. Avoid Cashing Out at All Costs

If you change employers, you have a few different options available when it comes to managing your retirement account.

Your first option is just to leave the money you’ve saved in that plan. You can also do a trustee rollover transfer to move the money to another account (an IRA, your new employer’s retirement plan, etc.) Your third option is to cash out.

Leaving the money in the plan and rolling it over are good options. Cashing out rarely is, though.

When you cash out, you become subject to income taxes and early withdrawal penalties. This has the potential to cut the value of your account in half!

A rollover is typically your best option. This allows you to transfer the entire value of the account without faces any taxes or penalties.

If you’re leaving one employer and don’t have another job lined up (or are going into business for yourself), open an IRA and transfer the money there.

Want More Financial Advice?

Saving money for retirement is a major step toward financial freedom. But, there’s still more you can do to maximize your savings and manage your money effectively.

Check out the business and finance section of our site today for the latest tips to help you continue staying on top of your finances.