10 Nov How to Save for Retirement
Financial experts traditionally recommended saving 10% of your annual income for retirement. However, with longer life spans and lower interest rates, you probably need to save about 15% if you hope to be comfortable as a senior.
Unfortunately, this may seem impossible. In fact, many families struggle to save anything for retirement at all. If this sounds like you, figuring out a way to boost your savings rate is essential.
After all, in retirement Social Security can’t support you by itself, paying you only $1,600 a month. Or if you plan to work late into traditional retirement years, that isn’t always possible due to unexpected health issues.
So, how can you increase the amount you’re saving? Here are five things to try.
1. Consider a side hustle
Sometimes, the income from your job truly does not stretch far enough to give you any money to save. If that’s your situation, think about looking into a side hustle and using all of the proceeds to fund your retirement.
There are lots of options for side hustles, including driving for a ride-sharing service, tutoring kids to sell crafts online, walking dogs, and writing blog content for the web. The right option will depend on your interests and your talents.
Working any type of side gig even a few hours a week could give you a few hundred dollars a month to save and could make all the difference in your ability to fund a secure future for yourself.
2. Open an IRA
Open an individual retirement account (IRA) so it is available for you to start saving for your retirement. If you do start your side hustle, put your earring in your IRA as soon as it’s earned. Be disciplined in this so you don’t allow this extra money to leak into paying expenses.
If your work doesn’t offer a 401K start your own IRA account so you can start putting money aside and take advantage of compounding interest. If your work does offer a 401K, put any amount possible in it. There is no minimum for investing in your 401K. Remember, 1% of your pay growing with interest is so much better than zero!!
3. Start small, but start with something
When you see advice recommending you save 15% of your income for retirement, it can feel out of reach. You may decide you simply can’t afford to save right now, so you do nothing at all. But the reality is that it’s better to save something than nothing, even if it’s just a small amount of money.
If you don’t think you have the cash to save, start by contributing just 1% of your income to a 401(k) or IRA via automated contributions on payday. One percent is a small enough amount that you probably won’t even notice the cash is gone.
While it may not seem like investing such a small sum would matter, getting started ASAP makes a difference. The sooner you get started, the sooner the magic of compound interest starts working. Compound interest helps small sums grow into big ones over time. Because you earn returns not just on your initial investment but also on investment gains — so your money actually earns you money. As your money compounds with interest, it earns you more and more every year.
4. Use found money to save
Many people build their budgets and plan their spending around the paychecks they receive. That’s good news if you’re paid biweekly because there are two months during the year when you’ll get three paychecks instead of two. When you get these bonus checks, don’t spend the money — deposit it into a retirement savings account instead.
If you get a tax refund, you can contribute this money to your retirement account as well. And if you get any bonuses at work or cash gifts for special occasions, you can also add these funds. Larger windfalls, such as inheritances, can be saved for retirement too. When you have extra cash, it’s easy to move the money into an IRA
By saving the extra cash you receive at various times throughout the year, you should be able to put away several thousand dollars per year for retirement without making changes to your lifestyle at all.
5. Cut some big stuff out of your budget
Cutting a ton of small expenses from your budget can help you save for retirement, but it can also strip all the fun from your life and make your budget impossible to stick to.
It’s a good idea to see if you have areas where you can limit your spending without affecting your lifestyle in major ways. But, it can be a lot easier to make big, one-time cuts. Such as downsizing to a less expensive home, switching to a cheaper vehicle, or even getting rid of one of your cars altogether.
If you cut big stuff, you can increase retirement savings by a meaningful amount. And you’ll only have to make the change once and adjust to your new normal. Instead of continuing to deprive yourself of everything you enjoy by living on a bare-bones budget for years.
The Bottom Line
Saving for retirement can be challenging, especially when you don’t have a lot of extra money to work with. The trick is to know what money is coming in, and more importantly, how it’s being spent. Having a budget, and a tight grip on your budget helps you find extra money that you could be saving but have been spending on non-critical items. Every dollar counts, so you need to start counting and controlling every dollar in your household budget.
Keeping a tight rein on your money and starting a side hustle is the winning combination to help you save for and secure your retirement!
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