It is no secret that most Americans are not preparing themselves adequately for retirement. In fact, according to the U.S. Census Bureau, less than one third of American people are saving money in an employer-sponsored retirement account.
Further, according to the Federal Reserve, the average working American couple has less than $5,000 saved for retirement.
These figures are quite alarming, especially considering the cost of retirement. Gone are the days of a reliable retirement income from pension plans and significant funds from social security. While some companies offer a match for what you as an individual contribute to your employer-sponsored retirement plan, many companies don’t offer anything. These days, the only source of income you can safely rely on is savings you built yourself.
Knowing this, then why do so few people prioritize saving for retirement? While we all know that saving for retirement should be a priority, it can often be overshadowed by other pressing financial goals. Young adults often struggle to save for retirement due to lack of education and massive student loan payments. As people grow older, providing for families might become more of a financial priority than retirement.
With so many financial demands now, it can be challenging to save for the future. While few people will deny that they should save for retirement now, there is always a sense of “I can start saving later.” While this is true, you can in fact start saving later, playing catch-up on your retirement is hard. It never gets easier to save for retirement. Not only does it get harder to save in the future, but you will likely lose out on the opportunity to earn thousands of dollars in compound interest. Now is the time to start prioritizing saving for retirement.
What Happens When You Don’t Have Enough Money for Retirement?
But what actually happens to those individuals who have not saved enough for retirement? It’s important to note that you are the only one you can completely rely on for your retirement. The bleak answer is that if you do not have enough money saved for retirement, you may not ever be able to retire.
And this wasn’t how retirement was supposed to be. Retirement plans, such as IRAs and 401(k) plans were introduced to give people additional retirement resources, instead of relying on Social Security alone. Unfortunately, around the same time these plans were rolled out, pensions were cut back. These days, pensions are nearly non-existent.
Without adequate retirement savings, you may need to continue working full-time. After a lifetime of work, retirement may never be a viable option if you failed to save.
The good news is that no matter your age, income, or personal situation, you can still retire by making some smart financial decisions. Though it is never too early to start saving for retirement, it is never too late to start either. Here are some ways you can start saving for retirement.
Rethink Your Budget
If you are having a hard time finding extra money to save for retirement, it is probably a good idea to take a long look at your budget. Retirement savings should be a priority, just like you have to prioritize any bills or savings goals.
You may need to cut out some expenses, like cable or dining out. Every extra dollar you can contribute to your retirement helps.
Start a Side Hustle
After cutting expenses, you may still find that you could use a little more cash. Side hustles are a great way to earn extra money on your own terms. This might be anything like starting a blog, selling artwork, freelance writing, or baby sitting.
Side hustles don’t have to be a ton of extra work, either. For instance, I started a blog as a hobby, and now I make money through blogging and freelance writing. To me, it doesn’t feel like work, and the extra money has helped me to meet all of my financial goals much faster than I would without the additional income.
Get Your Employer Match
If your employer offers a company match to your retirement account, do everything you can to at least get the full match.
For example, maybe your employer offers to match your own retirement contributions up to 5% of your income, make it a goal to contribute at least that 5%. Contributing anything less is literally leaving money on the table that is offered as part of your benefit package.
Prioritize Savings
Many people know that they should save for retirement, but struggle to prioritize it because it is so far away. But, in all honesty, investing a few dollars of every paycheck into a retirement fund isn’t as challenging as you think once you prioritize it. You can have the funds automatically deducted from your paycheck.
Even in the toughest of months, remember that retirement is more important than most of your other day-to-day financial priorities. Take a look at what you can cut back on so that you don’t have to lower your retirement contributions.
Don’t Touch Your Retirement Funds
The IRS allows individuals to take loans out against their 401(k) for a variety of reasons. Though the IRS requires you to pay these loans back, you are losing out on potential interest. In certain hardship cases, such as if you face eviction, need to pay tuition, certain medical expenses, or purchasing a primary home, the IRS allows you to take a hardship withdrawal from your 401(k).
While this is meant to be an option for you in very difficult situations, withdrawing funds from your retirement accounts have huge tax implications, as well as loss of interest. The best way to grow your retirement funds is to make wise investments and to leave your money alone and let it grow.
Create Other Smart Investments
You can make other wise investment decisions, which may help to subsidize your retirement income. In general, the stock market, HSA’s and real estate could be viable investment decisions for you.
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What are your tips for saving for retirement? What financial or emotional barriers did you have to overcome to start saving for retirement? Or, if you haven’t started saving, what is holding you back?
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Good tips Rachel. I talk to far too many people who’re older and are in this situation. Generally speaking, it’s much easier to make changes when you’re younger to try and make up for some lost time. My best suggestion is typically to just start. The amount won’t and doesn’t matter in the beginning – just simply start and build that confidence/discipline and the rest will work itself out when you apply your points.
Thanks, John. You’re right – when you’re thinking of how much you have to save for retirement, socking away just 1% of your salary initially doesn’t seem like it will help much. But I think a lot of people forget about compound interest. I know when I initially started saving for retirement, I felt like I was putting money into a savings account, which made me feel inadequate with how much I was able to save. Now that my income is a little higher, I can save more and have starting compounding interest. Just getting started is the hardest part.
I’m agree in this moment I am rebuilding emergency fund, that is been really helpful in the last 2 summers, but now I need to start to think better about savings for retirement too:D
Glad to hear your emergency fund is getting back up to your goal!
One benefit I miss from traditional employment is the 401k match. Over the course of seven years, I have an extra $30,000 in my account that I wouldn’t have had from before. And that’s before compound interest.
It’s one way my old job keeps paying me, even though I haven’t been there in two years. You gotta love passive income.
Great article Rachel!
I like your idea about starting a side hustle like a blog.
It is easy to start but does require hard work and dedication.
Thank you. Blogging is worth the effort in my opinion. It can be very hard, but it has the potential to earn a lot of money.