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If you want to retire rich, start saving investing early. The most powerful tool when it comes to retiring rich, is compounding your returns on money saved when you are young. Through the power of compound interest, cash invested today has a massive impact on your wealth level when you retire.

Look at it this way, assuming a retirement age of 65 and an annual compounded rate of return of 10%.

* Bob is 40 years old and invests $20,000 a year for retirement.

* Jenny is 21 years old and invests $5,000 a year for retirement.

By the time they retire, Bob will have invested $400,000 and Jenny $220,000 respectively. But because of the power of compound interest, Bob will retire with half as much money as Jenny, despite investing twice as much!

* Bob would retire with $1.97 million

* Jenny would with $3.26 million

So, what’s the moral of the story?

Stop robbing your future retirement income to pay for luxuries today.

Maximize your annual contribution to your IRA

When it comes to your IRA contribution limits, Uncle Sam’s motto seems to be “use it or lose it”. Workers that don’t make the maximum allowable contribution to their Traditional or Roth IRA by the cut-off date, are plain out of luck unless they are in their mid-fifties and qualify for catch-up contributions.

Take advantage of your employer matching funds

Many companies will match up to fifty-percent of the contributions employees make to their 401k and other retirement accounts. If your boss will match your contributions, take full advantage of it, as it is money for nothing… literally free money!

Don’t take your retirement cash out when you change jobs

The average American worker will change jobs several times in their career. When this occurs, the most foolish thing you could possibly do is to cash out of your retirement plan. What you should do is roll over the proceeds into an IRA or your new employer’s 401k plan. Besides avoiding significant tax penalties, you will be able to keep your money working for you tax-free.

Avoid IRA withdrawal fees

There are numerous ways to withdraw money from your retirement account in the event of an emergency. However, before you even think about doing so, make absolutely certain that you have done everything required to qualify, otherwise, you will get a quite a shock when you are hit with what could be thousands of dollars in fees and penalties.

Expand the Pie

Don’t just cut expenses – find a way to make more money! Get part-time work, or turn your hobby into a business enterprise. You should create additional streams of income to help fund your retirement.

Often this is an excellent alternative to cutting costs and scrimping, because it allows you to maintain your current standard of living, while providing for your future retirement.

You’d have had to be living on a desert island with no TV, newspaper or internet connection to have missed hearing about the great mutual fund scandal of 2003.

The issue was that some mutual fund companies allowed certain hedge funds to engage in after-hours trading, sometimes incorrectly referred to as market timing. Unfortunately, some companies have used the confusion about the term “market timing” to further their own cause. How?

They have used this issue to pretty much ban all forms of trading their funds, and some companies are imposing hefty short-term redemption fees–penalties for all intents and purposes–in the name of avoiding impropriety. But the real idea behind it all is: Buy our fund and never sell it!

These companies advocate a stubborn Buy & Hold philosophy despite the devastating effects that approach had on investors’ portfolios during the recent bear market. Performance is immaterial to them–they want your money in their fund whether it’s going up or down.

With all of the negative press over the months you’d think that mutual fund companies would have cleaned up their act and started giving more consideration to the individual investor. Not so.

This was brought home to me when a fund manager of an $800 million mutual fund called me to see what my plans were in respect to holding our positions with his fund (about $2 million).

I explained my trend tracking methodology and he got very angry when he heard I would protect my clients’ accumulated profits by selling his fund if it were to drop 7% off its highs.

His blustering made it quite clear that he did not like anyone managing for the benefit of their clients; he only cared about what was best for him and his company.

So, what can you do to prevent being taken advantage of? For one thing, do what your mutual fund company does — not what they tell you to do. Adopt a strategy for following trends, such as I do, and use the mutual fund manger’s superior stock picking ability to your advantage by buying and holding only as long as the fund is performing well.

Remember, the fund manager has one big disadvantage over you: He always “has to” be invested so that the public can purchase shares in his fund. You don’t!

If market conditions dictate that you are better off in the safety of a money market account because we are in a severe downtrend, then you can take your money and run for cover. He can’t. He is constantly trying to adjust his portfolio to ever-changing economic conditions so that his potential losses are minimized. At the same time you are being told that his fund is the investment for all seasons. Don’t fall for it!

You as an individual investor are really in the driver’s seat. Unfortunately, you have probably been conditioned to think that Buy & Hope is a good investment strategy, when in fact it is a losing proposition.

Bottom line is, use a well performing mutual fund during strong up trends and get over to the sidelines during trend reversals. (That’s exactly what I did for my clients in October, 2001, and we retained the lion’s share of their profits while Buy & Holders kept insisting the emperor was wearing new clothes.) Pretty soon you will feel that you are in charge of your financial destiny and any chosen mutual fund is merely a tool to bring you closer to your goals of maximizing your gain and minimizing your losses.