Approximately 22 percent of the American workforce has less than $5,000 saved for retirement. That means reaching retirement age with enough money to live comfortably and avoid going into debt might be out of reach.
Saving for retirement is one of the easiest ways to ensure that you’re able to live a comfortable lifestyle when you’re no longer working. However, if you’re not sure where to start, putting money aside can quickly seem overwhelming.
If you’re wondering how to start saving for retirement or if you’re saving enough, don’t panic. Here are a few tips to help you maximize your savings potential quickly without putting strain on your budget.
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1. Start as Soon as Possible
The most important thing you can do when planning for retirement is to start immediately. You’re never too young to start building your savings.
If possible, start as soon as you enter the workforce. If your employer offers a 401(k) plan as part of their benefits plan, enroll in it. You can then contribute a set percentage of your paycheck each month to start saving for retirement the easy way.
If your employer doesn’t offer a retirement account, you can always open a Roth IRA with your preferred bank. You can then transfer money from your bank account to the IRA each month.
Unfortunately, some workers put off saving for retirement until they’re already established in the workforce. If you’re one of them, don’t panic. Just start saving immediately.
The more you can set aside before you reach retirement age, the easier it will be to cover your expenses once you exit the workforce.
2. Make Use of Employer Match Programs
Some employers do more than just offer a retirement account to employees. They also match what you contribute up to a certain dollar amount.
If your employer offers a contribution match program, use this to your advantage. Start contributing immediately and add as much as you can to the account each year. Your employer will match what you add so you’ll build your savings faster.
Keep in mind that you’re only allowed to contribute a maximum of $19,500 per year.
3. Pay Attention to Your Risk Tolerance
Investing is another great way to increase your income and grow your wealth for retirement. Investments are inherently risky. The riskier they are, the more potential return you’ll get.
However, the strategies you use will change as you get older to better suit your risk tolerance.
Risk tolerance refers to the amount of risk you can take without ruining your chances of recovering income if your investments fail. When you’re young, you have a higher risk tolerance as you’re able to recover from losses over time.
As you approach retirement, your risk tolerance decreases as you have less time to recover from investment losses.
Get in the habit of reviewing your risk tolerance every year and adjust your investments accordingly. If you’re not sure where to start, speak with a financial advisor.
4. Get Rid of Your Outstanding Debt
The biggest drain on your savings is arguably your outstanding debt. The more debt you have, the more you pay in interest over time.
Those interest payments won’t go away until you pay off your debt in full. If you’re carrying debt into retirement, you’ll quickly discover that your retirement savings won’t last.
Instead of putting extra money aside into a dedicated savings account, start using that extra money to pay off your debt. The faster you pay it off, the sooner you’ll be able to free up money to help you start saving for retirement.
5. Increase Your Savings With Every Raise
As you progress in your career, you should start earning raises on a regular basis. Though it’s tempting to use those increases in pay to make your lifestyle more extravagant, don’t.
Instead, use the extra money you earn to increase your retirement savings.
If you’re not already contributing the maximum amount to your retirement accounts, increase your withholdings from each paycheck. Invest more in the stock market and increase your potential returns for the long-run.
Take care of home improvement projects that you’ve neglected over the years to improve your property value and increase your home’s resale potential.
6. Reevaluate Your Goals Annually
Ultimately, saving money for retirement is something you need to be proactive about. Your goals will change as you approach retirement, so take the time to reevaluate those goals every year.
You can do this at the end of the year or during tax season, whichever works best for your needs.
Remember to congratulate yourself when you reach your goals throughout the year. Just don’t stop reaching for your new savings goals.
7. Set a Firm Budget and Stick to It
One of the easiest ways to start saving money for retirement is to implement a firm budget as soon as you can. Look at your fixed expenses that won’t change from month to month. Then, look at the costs that can vary and take an average of what you spend over several months.
Once you have this number in mind, look for ways you can cut back on your spending. Are there subscriptions that you don’t really use? Are there discounts you can qualify for now that you haven’t previously?
If so, look into making those changes. This can free up money that you can set aside to improve your retirement savings.
Saving For Retirement Can Be Easy
No matter how far away retirement seems, you still need to start saving as soon as possible. Use these tips to help you start saving for retirement now and you’ll be ready when the time comes for you to leave the workforce.
Just remember that it’s never too late to start saving. If you’ve put it off for years, get started now. The sooner you do, the more money you’ll be able to set aside for your future.
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