Retirement often conjures images of leisure, travel and indulgence in one’s favorite hobbies. However, this is not the increasing reality for more than half of Americans, as Fidelity Investments found in a survey. Rather than a season of ease, retirement years may be consumed by pinching pennies; the reason for this is insufficient saving practices for the future.
If you have gotten off track in your savings, there are a number of strategies you can try before resigning yourself to an impoverished retirement. With some effort, the following strategies could help you retire into a comfortable, rich-enough lifestyle.
1. Cut out the unnecessary expenses from your budget
According to certified financial planner Tom Corley, who authored “Rich Habits: The Daily Success Habits of Wealthy Individuals,” some expenses can be easily eliminated. Each month, checking your credit card and bank statements closely can uncover expenses you may not even be aware of (i.e., subscriptions, club memberships, automatic service charges). Occasionally, you may want to check with your cable, internet and wireless service providers for better rates or to cut out unnecessary services.
2. Don’t put off saving
The simple rule of compound interest applies to saving for retirement: more time to save equals more time for money to grow. Therefore, start as early as you can, even with small contributions each month. A lot of money is lost down the road if you don’t start saving early.
As an example: a 67-year old who started saving $350 each month at the age of 25, with a 2.5 % increase each year and 7% earned annually, would have around $1.4 million. However, that number would be reduced to $654,000 if that same person had waited to start saving until the age of 35.
3. Don’t make savings a choice; make it automatic
Setting up your savings to be automatic eliminates the thought or questions. You can do this in several ways: have a monthly contribution to a retirement account (i.e., 401k) withdrawn from your paycheck or set your checking account to make automatic deposits into an IRA or brokerage account.
4. Make it your goal to save 10% annually
The average annual percentage of income Americans set aside for retirement, according to the survey by Fidelity, is 8.5. However, the recommended percentage for comfortable retirement, per retirement experts, is a minimum of 10%, though 15% is ideal.
You may not be able to start off at that amount, but, you can increase it each year as your income rises, until you reach the 15% rate of savings.
5. Make the most of employer matches
If your employment includes the benefit of matching contributions to a workplace retirement plan, take full advantage so as not to pass on free money.
According to 401khelpcenter.com, the most common employer match is 50 cents per $1 contributed, typically up to 6% of pay. Using this as an example, if you contribute only 3% of your $40,000 a year salary with your employer offering a match of 50 cents, you’d be letting $600 in free savings slip away.
6. Don’t spend your raises – put them into savings
It’s tempting to increase your lifestyle with your salary; but, if you’re making ends meet without a raise, tuck the extra away for the future.
7. Take advantage of catch-up contributions
You still have a chance of catching up with savings, even if you get a later start, if you make catch-up contributions. Boosting contributions can boost the total amounts you are able to set aside in IRAs, 401ks, 403(b)s and and 457 plan.
8. Some risks are necessary for later rewards
While most people think of investment success as saving, this should not translate into simply stashing your money in a savings account. Ken Weber, president of Weber Asset Management, advises people to take as much risk in each stage of life as you can handle. Practically speaking, this means investing your retirement savings in stock mutual funds in your younger years (20’s – 30’s) and switching to fixed-income assets (e.g., bond funds) as you near retirement age.
9. Diversify your investments
You shouldn’t put all of your retirement nest egg into one basket, according to Hardy. In other words, don’t invest all of your money into a single stock. If you do, you could lose your savings if that stock takes a nose dive. Diversify your portfolio with a mix of stocks and bonds — or, better yet, mutual funds holding a variety of stocks or bonds or both.
10. Watch out for fees eating up investment returns
Investments, such as 401ks, often offer varying fees. If possible, switch to investments with lower fees, making sure to do so only if they meet your risk tolerance and investment objectives. A fee or expense of 1.5%, for example, could reduce your retirement balance by 28% in comparison to a fee of 0.5%.
11. Ride out the market
If you want to protect your retirement savings, don’t pull out of the stock market during a downturn. Instead of protecting yourself, you’re actually cutting yourself off from opportunities for rebounding investments and, thus, locking in your losses. The better you construct a financial plan and the more faith you have in it, the easier it will be to ride out the market fluctuations.
12. Contribute to a Roth IRA for tax-free retirement
This is a great way to save money tax-free. Every other retirement account requires you to pay taxes on withdrawals, leaving you less retirement money.
13. Invest in Income-Generating Real Estate
If you choose wisely and finance carefully, purchasing real estate (i.e., house rentals) generating passive income for you for the future can be a greatly beneficial strategy.
14. Boost income with a side gig
A side gig may be a second job, freelance work, or a hobby you can turn into an income-generating venture. Funnel the extra income into your retirement savings. If your work on the side is self-employment, look into contributing to a solo 401k or perhaps a Simplified Employee Pension (SEP) plan. Any of these contributions might be tax-deductible.
15. Don’t wait until retirement to downsize
Living smaller, below your means, prior to retirement will save you the higher mortgage payments, higher insurance, and higher utility and maintenance expenses associated with larger homes – all of which can go into funding your retirement.
16. Lower your cost of living by relocating
During retirement, living abroad or relocating to a lower-cost-of-living state can help lower expenses. You don’t have to wait until retirement; doing this in your working years can beef up your retirement considerably.
17. Shop around for a job with a better retirement plan
A 401k match is good, but, a pension is even better. With a pension, you are creating a stream of income throughout your lifetime. Employers offering pensions may be harder to find these days, but, if available, may be able to compete with a job offering a slightly higher salary.
18. Forget keeping up with the Joneses
Friends, neighbors and family may appear to live more richly now, but, trying to keep up with them will only detract from your chance of riches in retirement. Look for a group of friends with similar values.
19. Reach out to professionals
Hiring the right professional (a certified financial planner (CFP), chartered financial consultant (ChFC), or chartered financial analyst (CFA), for example) can help increase your chances of retiring rich. Each of these professionals are held to strict standards and codes of ethics for these designations. They can assist you in creating a comprehensive and sustainable financial plan.
20. Take your chances on the lottery
This isn’t a strategy to retire rich; the odds are so slim of winning. However, if you choose not to plan responsibly for your future retirement, why not take a chance on hitting it big? Without this or sufficient savings, the reality is, you’ll be working all your life.