Are you saving enough for retirement? It’s a question that immediately spikes anxiety levels for many people. Unfortunately, many retirees-to-be are uncertain how much money they need. Others set a figure on the low side only to later wind up with insufficient funds when it’s too late to go back to work. Finding better ways to save for retirement can help you reach your goals and have less stress in your golden years.
How to Save More for Retirement
Contributions to savings and investment accounts are among the top ways to save for retirement, but how can you increase your contributions?
1. Find Regular Ways to Save
Personal budgets have a general tendency to get bloated. In addition to the unfortunate bloat of inflation, you may take on new subscriptions, find a few special treats or activities that you enjoy and increase your spending in other ways. Unfortunately, those $10 and $20 per month increases add up over time.
Regularly, analyze your budget. Trim the fat. Make lifestyle adjustments. For example, cut out unused subscriptions. Adopt meal prep to avoid going out to eat. These are some of the many ways to consolidate your budget and live on less.
2. Choose Income-Producing Assets
Your various assets increase in value to varying degrees, and valuation growth is important for building wealth. However, some assets shoot off substantial income. At the moment, it’s fairly easy to find high-yield savings accounts that yield 4% or more in interest. You can also invest at Groundfloor or other real-estate based options. These produce great returns, but other options are available.
Income-producing assets include rental real estate, dividend stocks and others. Building a stream of royalty-generating assets, such as from art and books, can also generate income for you now as well as in retirement. As you establish and grow these various income streams from your assets, you can increase your monthly allocations to retirement savings. Plus, you may continue to enjoy the income from your assets in your retirement years.
3. Gradually Increase Contributions
A typical raise is enough to alleviate inflation-related increases to your income. However, there are times when a raise exceeds inflation, such as with a promotion. You may switch jobs and earn more money. There are also bonuses, commissions and other financial windfalls that you do not necessarily depend on.
When your regular pay increases, increase your contributions to retirement accounts accordingly. In addition, allocate your windfalls as extra contributions. If your contributions for the year are maxed out, look at peer-to-peer lending and other such investments that offer a substantial return.
4. Save on Payday
Some people wait until the end of the month or the day before a payday to save money. By doing so, they save whatever is leftover. You may heard the advice to pay yourself first, but what does this mean? It means that you make savings contributions first. Of course, there are things you need to pay – such as your mortgage, utilities, food, auto and gas. Once the essentials are properly allocated for, make your savings contributions to ensure that your retirement goals are met.
5. Spend Intentionally
It is a convenience to have cash easily accessible through your debit and credit cards, but this is also a downfall. While you’re running errands, you may stop to grab lunch without a second thought. You may decide to impulsively buy a new outfit for a big meeting at work or a special social event. Maybe you just feel like having cheesecake or a smoothie one day.
Impulsive spending results in unnecessary expenses. It directly reduces how much money is available to save. Pay attention to impulse buys. Ask yourself if you really need it. Then, ask yourself if you should shop around for a better price.
How Much Do You Need to Save for Retirement?
One of the things that makes retirement planning and saving so difficult is the matter of “how much.” Years ago, the common assumption was that having a million in your 401K would do it. That’s now increased to $2 million, and who knows what it’ll be a few years from now.
That, of course, is a blanket estimation for how much you need to save for retirement, but it’s not an accurate number by any means. Things like your lifestyle, debts, cost-of-living in your area, hobbies and additional income that you expect to receive in retirement play a role. The farther away you are from retiring, the grayer these figures are.
Some people say you need 80% of your pre-retirement income in retirement. This can come from Social Security, retirement account distributions and other sources. Others say you need enough to only take out 4% from your retirement account each year.
Of course, there are different ways to generate income in retirement besides Social Security and retirement account distributions. These include royalties, real estate income and others. How much you need socked away is directly related to your various sources of income in retirement.