With the average American juggling multiple here-and-now financial burdens at once, managing budgets has become a lot more challenging than it used to be. In fact, according to a survey by the nonprofit Center for Financial Services Innovation, only 28% of Americans are considered “financially healthy.” The majority of Americans (55%) actually report that they are simply “financially coping,” which means they are struggling with some, but not all, aspects of their financial fitness.
Dealing with credit card debt, college loans, and rising living expenses is leading people to put retirement planning off for another day, which in turn creates financial instability over the long haul. But the truth is, retirement planning is not just something the uber-wealthy can afford to think about. Indeed, most of us can’t afford not to add retirement saving to our overall budgeting — no matter how small the steps we can take today are.
It’s about controlling what you can
One universal truth for retirement saving is the more you can save — and the younger you can start saving it — the better. That’s because the power of compounding interest allows you to earn interest on your savings through the years. If that sounds inconsequential, it’s not. According to AARP’s retirement calculator, saving an extra $5,000 a year over 30 years could add up to an additional $520,000 available for your retirement. But whatever amount you can salt away — whenever you can begin to do that — benefits from the same math, and it will positively impact your future bottom line.
Of course, no one knows what the future holds. What if you live longer than the average projections? What if you have a major health issue? What if Social Security reduces payments, leaving you without a portion of the income you were relying on?
We need to start controlling what we can and avoid “best-case scenario” planning which assumes none of life’s unexpected obstacles will actually happen to us. By setting aside as much as we can, we’ll give ourselves wiggle room to deal with whatever comes our way. What really matters is to start making small moves, today.
5 tips to help get started
It’s hard to focus on retirement savings when you have other bills to pay. Here are a few simple steps to get your own financial health in shape on the road to retirement.
1. Use a retirement calculator to determine your retirement goals and understand how much you need to start saving each year to reach them.
2. If you can’t immediately save as much as you’d like for retirement now, set a monthly retirement savings goal that is a percentage of your income. Try to increase your contribution by 1-2% or more each month until you reach the level that moves you towards your retirement goals.
3. If you are still growing in your career, consider bumping up retirement contributions along with potential pay raises. If you reach certain milestones like paying off a major debt, allocate a portion or even all of that new available money towards your retirement investment fund.
4. Create a monthly budget that includes both retirement savings and a plan to reduce or eliminate bills or unnecessary costs. Insurance can also protect you and your family from unexpected events that can throw your retirement planning off track. Ask your employer about supplemental benefits that can help with this, like critical illness or disability insurance. They too can contribute to a more balanced financial plan.