If it seems impossible to you to save for retirement, then you’re not alone. Millions of Americans are facing a retirement with nothing in the bank.
In fact, a recent survey showed that half of all Americans have not even begun to save for retirement and of those who have, the average retirement savings is a whopping $29,000. That means that for the average number of years of retirement, you’ll be living on $190 per month. However, it doesn’t have to be that way.
Here are five easy tips to help you save for retirement:
1 – Treat It as a Bill
You’ve probably heard of this strategy, but the reason it’s so commonly mentioned is because it is one of the best ideas ever invented for saving for retirement. Most people tend to think of saving money for retirement as being an optional thing, as if it’s some kind of a luxury. This means that people toss some cash into their retirement savings accounts when they think of it, but they forget about it for the rest of the time.
The reality is that if you use this approach, you’ll never save enough for retirement. You absolutely must treat this like a bill, as if you have to pay it each month in the same way that you have to pay the rent, the electric bill and the gas bill.
2 – Use Dollar Cost Averaging
Another great idea is to use what is known as dollar cost averaging. Many people, when they save for retirement think that they need to get themselves a deal on some stocks in order to put money away. The thing is, time is on your side when you are trying to put away some cash for your golden years. That means that instead of looking for a deal, which may never come and which may ultimately not pan out, you can take advantage of saving over time.
The idea is called dollar cost averaging and what it means is that you invest a specific amount each month regardless of whether the market is up or down. Over time, the money does go up in value even if in the short term it doesn’t. This is the slow and steady approach to save for retirement and it works wonders for most people who use it consistently.
3 – Take Advantage of the Full 401K Benefit
The very definition of foolishness is to not take full advantage of the matching funds that your employer offers on your 401K retirement savings plan. Think about – this is free money that you are being handed each and every month. The only string that’s attached is that you have to spend it when you retire. Considering that you absolutely must save for retirement anyway, why wouldn’t you want to maximize the amount that you will have available? It’s really silly because by lowering the total amount you put away each month, not only will you have less money for retirement, but you’ll also be leaving free money in your employer’s pocket.
4 – Cut One Thing
If times are tough and you simply can’t find even $50 or $100 a month to put away, consider cutting down on something you buy each month or each day. It may be the morning cup of coffee on your way to work. It may be the premium movie channel package from your cable company. Or maybe it’s the weekly night out at a fancy restaurant (you could go to a cheaper place and still enjoy a night out). The bottom line is that most of us tend to waste money on things that we don’t really need but simply want. However, if you think about it, you are in essence saying, I’d rather have a fancy cup of coffee now and starve when I retire. Seriously, do yourself a favor and put money away for retirement, even if it means you have to make your coffee at home.
5 – Use Every Advantage Uncle Sam Offers
If you are over 50 years old, you can get tax advantaged status to add even more money to your IRA and other retirement accounts. However, even if you’re young, there are several ways to save for retirement and avoid a huge tax bill at the same time. Get yourself an IRA (a Roth IRA is better if you qualify – your money will grow tax free and can be withdrawn tax free). Look into getting an individual pension plan and individual 401K plan if you are self employed or if your employer doesn’t offer those things. These things should be used in addition to an IRA.
The Bottom Line
It’s up to you save for retirement. However, it doesn’t have to be difficult to do. You just have to make the decision that you are going to do it today.
About the author: George Gallagher is a personal finance and education blogger who helps students find private student loans to help pay for college.
Credits: Photo courtesy of Charlene Sprong.