You can request a loan to finance most major expenses in your lifetime including your car, your or your kid’s education, and your home. But there’s one important investment that even the almighty loan cannot assist with: funding your retirement. The only way to build enough money to retire is to do the diligent work of saving.
The United States government considers the full retirement age to be 67. You may desire to retire earlier or later that that. However, nearly two-thirds of 40-somethings have saved less than $100,000 for retirement and 28% of 60-somethings have less than $50,000.^ Younger generations are in a similar position as a majority of millennials don’t feel they’re on track with retirement savings largely due to housing costs.
Saving for retirement may seem like a daunting task, but there are steps you can take to reach your goal. A comfortable nest egg can likely be had by saving 10% – 15% of your income over the course of your working years. If you didn’t start saving at the beginning of your career, just know it’s never too late to make a difference.
Here are some tips to get you started and keep you on track for saving:
1. Prioritize Retirement Saving as a Top 3 or 4 Financial Goal and Get To It
Many people will put this off as it seems far off. Worse, some even raid retirement savings to help pay for their child’s college. That’s a bad idea. You can get financial aid for college, but who will help you in retirement? After food and shelter, retirement saving needs to be considered pretty high in your financial priorities even if you are unable to put away much at the moment.
Important: the sooner you start saving, the harder your money can work for you thanks to the power of compounding.
2. Put Your Savings on Autopilot by Setting Up a Recurring Contribution
It’s easier to save consistently when you don’t have to manually setup a contribution every time you think about retirement. Also, if it’s not in your checking account, the less likely you are to use it. 401(k)s make it easy with each payroll if you have access to one. Otherwise, consider an IRA an setup an monthly automated conribution.
3. Look for Ways to Increase your Income and Saving
Naturally, the more money you’re taking in each pay period, the easier it is to save. If you can, find ways to boost your income at your current job, look for extra hour work you enjoy doing, or look for opportunities to take your career to the next level.
If you can’t save 10 – 15% of your income towards retirement right off the bat as many of us are unable, start small and work your way up. Even 1%-2% saved will help get the ball rolling. Then with each raise you receive, give your retirement account a raise too and save another percent or two until you get where you need to be.
4. Get Your 401(k) Match
If your employer offers a 401(k) and provides a matching contribution, do everything in your power to utilize that benefit. Otherwise, you’ll be passing up on free money in your retirement account. And, this match counts towards getting to 10-15% of your income going towards retirement savings.
5. Leverage the Catch Up in Your Retirement Account
It’s likely never too late to make a difference in saving a meaningful amount for retirement. Retirement accounts offer you ways to contribute more to help. If you’re over age 50, and you have access to a 401(k), you can contribute an extra $6,500 on top of the normal $19,500 contribution limit for employees. If you are using an IRA, you can contribute and additional $1,000 beyond the $6,500 limit. This can help you catch up if you’re behind on your retirement goals.
By following these tips and staying the course over time, you’ll have a good shot at building a nest egg that matters. A loan can help you delay or afford some expenses, but there’s no benefit in delaying your retirement planning, so start saving today! Your future self will thank you.
Looking for more information on how to improve how you manage your finances? Give this blog a read: How to Budget and Manage Your Money Smart.
^ Source: The Harris Poll, Road to Retirement Survey. January 2020 on behalf of TD Ameritrade; n = 2,000.