Every worker should be making it a priority to save for retirement to ensure that they have a secure future ahead of them. Making an investment for when your older and unlikely to be able to work is important because you cannot live on SS alone. You will likely need to depend on your savings to make up what the difference is between the income you will need and the amount of your retirement benefits.
Unfortunately, some recent research has discovered that most people are falling far behind when it comes to investing the amount they will need for their investments to provide enough income for them long after their paychecks stop coming in.
Workers are not doing nearly enough to save money for old age
An estimated 33% of employees are saving under 5% of their income for retirement.
Now, while it is good news that a lot of people are saving at least a little money, the not so good news is that investing under 5% of earnings is well below what you will likely need to provide for yourself as a senior citizen. In fact, while the usual rule of thumb has been investing at minimum 10% of your income for your future retirement, even this probably is not enough given the lower future returns that are expected, increasing healthcare costs and longer lifespans.
Instead, most future retirees will probably need to start investing about 15% to 20% of their earnings, which includes any employer match, if they desire a comfortable standard of living when they are in their later years.
How can you save even more for retirement?
While it is easy to say that workers need to save over 5% of their income, it is harder to do that in reality. In fact, if it were so easy to invest enough, it is likely many people would be doing that already.
There are a few techniques most people could implement that could help increase their savings rate. To raise the amount of your income that you are putting aside:
- Save your raises. When you get an increase to your salary, it should be put into investments before you can get used to having the extra money — especially if you are currently saving under 5% of your income. You are not yet reliant on that extra money so you could keep living on what your current budget is and add put your extra earnings into your retirement plan.
- Inch up your contributions to your retirement account. If you are able to increase your retirement account contributions slowly over time, you could gradually start putting in the necessary lifestyle changes that will enable you to invest 15% of your income. For instance, try increasing your contribution by about 1% and see if you could still live without any debt. You probably will not notice any difference. Once you start getting used to that, then raise it by another 1%.
- Make a big change. A lot of small budget cuts could be difficult to sustain, but one huge lifestyle change could be easier. For example, if you were to downsize to a smaller home or cheaper car, you could divert additional money to your retirement savings and you should hopefully acclimate fast to your new circumstances without having to constantly deprive yourself of the small pleasures.
If these approaches do not work for you but you are among the 1/3 of Americans that contribute less than 5% of your total income to retirement, it is important to search for a solution that will let you invest more. You will need savings later on in life, and the sooner you invest enough of your income into retirement, the easier it will be for you to build up that nest egg.