Getting started saving for retirement isn’t always easy. As a money coach for millennials, I’ve balanced paying off $300,000 in debt while investing. And while I now have enough money to retire early, things have changed a lot since I made my first 401(k) contribution about 17 years ago. The gap in retirement savings is widening.
According to a 2023 U.S. News survey, approximately 41% of American adults will stop contributing to their retirement accounts in 2022 due to rising costs of living. What’s even more concerning is that nearly one-third have withdrawn from their retirement savings in 2022 to make ends meet.
If you’re feeling overwhelmed or burdened by other financial obligations and goals, you’re not alone. Saving for retirement can be difficult, but with active financial planning, continuing education, and the right emotional support, you can take small steps now to build a great future in your golden years.
Not ready to save? Get started now
Saving enough to enjoy retirement is undoubtedly difficult. Especially as the cost of housing and other necessities continues to rise while wages cannot keep up. Many of my students over 50 are delaying their retirement plans because they can’t afford to live on their current savings. Some people may put off contributing to their retirement savings until their debts are paid off or their income increases.
I’ve coached thousands of people to achieve their financial goals, and my biggest regret is that I wish everyone had started sooner. There will probably never be a “perfect” time. However, there are ways to increase your savings for retirement without putting your money away. Here’s how we recommend you get started:
Open an account now and be ready when you’re ready. Track the investments you’re interested in and learn about trends and nuances over time using features like “Watch List.” You can increase your wealth by paying off high-interest debts such as credit cards. cash flow. Once you’ve paid off your debt, you can put some of that money toward retirement savings while you tackle your next debt. Follow money experts like the CNET Financial Expert Review Board for practical education and inspiration. Talk to people you know who are successful. I retired to remind myself that it is possible.
Once you have some financial knowledge, it will be easier to get started.
Social Security can sometimes help, but it’s rarely enough
If you’re relying on Social Security benefits in retirement, you might want to do a little research. I learned firsthand that Social Security benefits are often underserved. After my parents retired, they relied solely on these benefits to survive. However, when my father passed away, I found out that only a portion of my father’s benefits would be used to care for my mother. Additionally, even if full benefits are paid, Social Security alone is rarely able to cover medical costs. My mother suffered from diabetes and kidney failure, both of which required medical expenses beyond what Social Security could cover.
To better plan, figure out how much you can expect to take from Social Security in retirement. The maximum monthly Social Security benefit amount depends on your retirement age. For example, if you retire in 2024:
If you are 62 years old, the maximum benefit is $2,710. Once you reach retirement age, your maximum benefit is $3,822. If you are 70 years old, your maximum benefit will be $4,873.
The longer you wait until retirement, the greater the benefits you will receive. However, if you need to retire early,
Take advantage of your Roth IRA
Regardless of your age, it’s a good idea to save your retirement savings first. A Roth IRA, or a Roth option in your 401(k) if your employer offers it. About 88% of 401(k) plans offered Roth accounts in 2021, nearly twice as many as a decade ago, according to the Plan Sponsors Council of America.
Because you contribute to your Roth IRA with after-tax dollars, you won’t have to pay taxes on the money when you withdraw funds from your Roth IRA in retirement. But more importantly (and what most people miss), you also won’t have to pay taxes on any growth you’ve made since your initial contribution.
If you contribute $5,000 to a traditional IRA or 401(k) and this increases to $25,000, you’ll pay taxes on the entire $25,000 when you withdraw it. However, if you contribute to a Roth 401(k), you won’t have to pay taxes on the additional $20,000. That’s a big advantage.
In 2024, you can contribute a total of $7,000 to all IRAs, whether traditional (pre-tax) or Roth (after-tax). Additionally, if you are 50 or older, the limit is $8,000. A $7,000 annual contribution may seem like a lot at first, but if you divide it by 365 days in a year, you’ll need to save $19.18 per day, or about $575 per month, to reach the IRS limit. There is. The sooner you start, the longer your money will work for you thanks to the power of compound interest.
For example, let’s say you start with $0 today and invest $575 each month until you reach the maximum IRA of $7,000. If you continue at this pace for 10 years and earn 10% interest, your future living expenses will be an additional $111,562.
However, Roth IRAs have income limits. In 2024, the full contribution will phase out for those earning more than $146,000 for single taxpayers and $230,000 for married couples filing jointly. If you exceed the income limits for contributing to a Roth IRA, you may want to switch to a traditional IRA. My biggest financial regret is not realizing the power of a Roth IRA sooner.
Take advantage of user-friendly investment tools
Even just a decade ago, investing was far less transparent and far more complex. We no longer have to settle for the expensive and confusing mutual funds that our parents and grandparents had to choose from. Instead, thanks to rapidly evolving digital tools and access to online banking and investment platforms, we can start saving for retirement within minutes.
I have a 401(k) through my company and recently transferred my traditional IRA and Roth IRA from an outdated financial services provider to Fidelity. Fidelity is more user-friendly, customizable, and comes with education on each investment. But even if you’re not self-employed, check out your company’s investment platform to see what options are available to you. You may be able to control where your money is invested.
Even more encouraging is the growing selection of environmental, social, and governance metrics, otherwise known as ESG, available to investors. For example, you can now choose retirement investments based on social or environmental factors such as a company’s carbon footprint, waste management practices, and workforce diversity efforts.
Take advantage of high discounts and CD rates
The current high interest rate environment can help you earn a little extra income as you approach retirement. High-yield savings accounts shouldn’t be used as your primary retirement account, but they can be useful as a supplement. Having at least one month’s worth of buffer savings in your HYSA reduces the risk of pulling money out of your retirement fund when times get tough.
This one-month buffer should include expenses to cover housing, utilities, transportation, food, and medical expenses. This eliminates the need to wait for your next paycheck to pay your bills.
If your risk appetite isn’t robust enough to invest in the stock market, real estate, or other alternative investments, I use certificates of deposit to save a little more money while reducing the temptation to spend money right now. I like to do it.
For example, I decided to put a year’s worth of Federal Deposit Insurance Corporation-insured money into a CD so I could earn more than 4% for a down payment on a home this year. This will help you get a larger mortgage. house.
CDs are a great entry point into investing for people who are worried about losing money. Although it helps you diversify your overall assets, in the long run you won’t get as much return as investing in the stock market.
If you’ve maxed out your contributions to a tax-advantaged retirement account and are ready to take on a little more risk, invest using online platforms or robo-advisors, invest in index funds or publicly traded Consider increasing your funds with mutual funds. and other investment types.
Don’t wait. your future self will thank you
The sooner you start saving for retirement, the faster your money will grow. Even if you’re not ready to take the plunge and start saving just yet, explore different retirement accounts and brush up on different savings strategies to make setting your future priorities a little easier.
Once you’re ready, start planning and making regular contributions to grow your retirement savings. This will help you get into the habit of giving and align your budget with retirement savings, necessities, and other financial goals.
