How many people do you think have retirement savings?
Hint: the answer is a lot scarier than you think. In 2017, nearly half of all American families had no retirement savings at all.
That doesn’t have to be your life. Here, we’re breaking down the nine best ways to make saving for retirement a little easier.
1. Don’t Follow Your Parents’ Example
First, the basics: don’t follow your parents’ example.
The truth is, your reality is different from your parents. The housing market was significantly healthier in those days, and the stock market was doing well in the pre-Recession years. Purchasing power has also gone down–people are earning more because the cost of living is higher.
The past is the past and it doesn’t look that much like the future. We know now that putting all your money in a house isn’t a good idea, and we also know that you can’t afford to save that much.
Take your parents’ financial know-how, but don’t try to replicate their savings plan in your life. It just won’t work.
2. Start Today with Your Workplace Savings Plan
The easiest place to start saving is already carved out for most people in their workplace savings plan.
In fact, most larger companies offer 401(k) plans. Which is great news until you realize that two-thirds of Americans don’t contribute to them.
That’s foolish because a 401(k) plan allows you to contribute pre-tax income. In other words, the money comes out before your paycheck is put in a tax bracket, so you can contribute more with a smaller dent in your paycheck.
3. Add an IRA
Even if you already have a 401(k) through your employer, it’s a good idea to add an IRA to help build your nest egg.
You have two options: a traditional IRA and a Roth IRA. Which one you choose depends on your circumstances.
A traditional IRA can have tax-deductible contributions, and you won’t have to pay taxes on your contributions until you start making withdrawals in retirement. This means that you have to pay taxes at a higher tax bracket.
A Roth IRA is good if you expect to be in a higher income bracket later (as with young people) because you get taxed at the bracket you were in when you opened the IRA.
So, if you’re older or you’re already high-earning and don’t expect your income to change, go for a traditional IRA. If you’re young and expect to earn more later, get a Roth IRA.
Want to open an IRA? Read more here.
4. Save at Least 25% of Your Income
It sounds like a lot. But the truth is, we’re living longer. And that means we’ll need more money for retirement than we used to.
That said, it can be hard for young people who came of age in the Great Recession to think that savings accounts with low-interest rates or paltry stock returns are worth it.
With that in mind, you should also plan on having a second (or third) career in retirement to supplement those savings. You won’t work like you did when you were young, but enough to help your savings last longer.
5. Automate Saving, Limit Spending, Stash Extra
Now, let’s talk about savings. Which, for some people, is sort of like pulling teeth.
The single easiest way to save is to automate your savings and investment plans. Think about it like paying your Internet or electric bill–it’s another bill you’re required to pay every month, not optional. The difference is that you’re paying yourself.
If you don’t think you have enough money to automatically save each month, then we’re moving on to the next step: limit your spending.
Let’s be honest. You don’t need to buy new clothes that often, or get your nails done every other week, or go out to lunch every day, or buy coffee every morning. You can treat yourself every once in a while, but all that money you don’t spend is money you could be saving.
And if you get any extra? Don’t spend it. Put it into savings and operate as though your income has stayed consistent.
Got a raise? Put the extra money in savings or put it towards paying off your mortgage.
Got a tax refund? Stash it. Your future self will thank you.
Want a bigger tax refund? Read more.
6. Set a Goal
Of course, it can be hard to keep your eye on the prize if you don’t know what number you’re actually working towards.
Take a realistic look at how much you spend in a month and how much money you would need each year to live comfortably but not lavishly. Use that number to calculate a goal for yourself. You can also set benchmarks.
Knowing what number you’re working towards makes the whole process easier and more rewarding.
7. Meditate on Your Future Self
Let’s be honest: saving isn’t fun.
We tend to reward ourselves by spending money–by going to this party or eating at this restaurant. Saving works the other way around by telling yourself you can’t have something now so that you can have the reward later.
With this in mind, spend some time meditating on your future self. What kind of life do you want to live 40 years down the road? What about when you’re 90?
Saving is part of building that future.
8. Learn the Basics
You don’t need to learn the ins and outs of complex microeconomic theory to be able to save.
That said, it helps to know the basics of finance. It helps you have a clearer picture of what your current financial situation is and how to make the most of the money you have now.
Even a simple financial literacy class can work wonders for your relationship to money and saving.
9. Retire Later and Delay Social Security
As we noted earlier, people are living longer. That means that if you retire in your 60s like your parents and grandparents and live to be 100, that’s almost 40 years spent draining your savings.
And the truth is, most people don’t have the resources to save for 40 years of unemployment.
The best way to deal with this is to retire later. It’s not fun, but it is practical.
The same thing applies to Social Security. The earliest you can start receiving Social Security benefits is 62, but for each year you wait to go on Social Security, the more your monthly benefits will be.
Making the Most of Your Retirement Savings
Just because you’re being smart with your money and planning ahead with your retirement savings doesn’t mean you can’t enjoy life now.
We’re here to help you learn and make the most of life today and in the future.
Check out our blog for more tips on how to make the most of your money, like this post on how to get cheap car insurance.