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Nearly half of Americans are saving nothing for retirement. And for adults under 34, the percentage is even higher.
That’s according to a survey conducted last month by financial services marketing and research group LIMRA, which also says less than a quarter of Americans have talked to a financial planner about retirement.
The most common reason people aren’t saving? “Because they could not afford to do so.”
Relying on Social Security as a sole source of retirement income could be a risky proposition. Social Security administrators recently admitted that without changes, the program is likely to run out of cash in 2035. The disability component and Medicare are expected to run out even sooner – in 2016 and 2024, respectively.
But while the statistics are sobering, all is not lost for those unable to save for retirement. The key is to start both soon and small, and use some simple tools that will help…
1. Make it automatic
Don’t wait until you have “extra money” – there’s no such thing. Find what you can, even if it’s just a little, and get started. The single best thing you can do is automate: Have money automatically transferred from a paycheck or checking account into savings. Start with the max you think you can afford – if it doesn’t work, you can always reduce it later.
Consider your retirement savings as an obligation, no different than any other bill. Because unless you plan on working until the day you die, that’s exactly what it is.
2. Spend less with a budget
A 25-year-old who sets aside just $12.50 a week – a meal out or a few coffees – and invests it with an 8 percent return will have more than $190,000 at 65, having put in just $26,000 over four decades. Where do you find extra money? Start by seeing where your money is going now. Track your expenses, then categorize them with a simple spending plan. Once you learn what you’re spending on, you’re likely to see places you can save a buck or two – divert that money to retirement savings.
If you’re not familiar with how the process works, there’s plenty of help available, including articles from us like Resolutions 2012 – Budgeting Your Way to Happiness.
3. Destroy debt
Every dollar you pay in interest is a dollar that won’t be making your golden years golden. If you’re in debt, read articles like Resolutions 2012: 4 Steps to Destroy Debt, and get started. List your debts, choose one to focus on, and when it’s gone, add the former payments to the next debt on your list. Find whatever extra money you can wherever you can and increase your debt payments – always pay more than the minimum.
Remember: Minimum payments are designed to benefit lenders, not you. Your credit card company doesn’t care when, how, or if you retire. If you do, borrow as little as possible, and never for things that go down in value.
4. Explore 401(k)’s and other retirement plans
If your employer offers a retirement plan, take a look, especially if they match your contributions – a rare opportunity to double your money for nothing. They can take money straight out of your paycheck and put it aside. That will also lower your tax liability because you won’t be taxed on the money in your plan until you take it out in retirement.
That doesn’t mean you want to leave everything on auto-pilot: Make sure to tailor your 401(k) to suit your age and goals. But whatever you do, leave that money alone – tapping your 401(k) early has heavy penalties.
If your job doesn’t offer a retirement plan, create your own with an Individual Retirement Account, or IRA. And if you’re one of the many who say they can’t afford to put money away, see Tip 2: Start a spending plan.
5. Earn more on your savings
Keeping your money in low-yielding bank accounts is safe, but that protection comes at a price. If you set aside $200 a month for 40 years and earn 1 percent on it, you’ll end up with $118,000. Earn 8 percent, however, and you’ll have $700,000. Earn 12 percent and it will swell to more than $2,000,000.
Too many people are fixated on working hard for their money, rather than making their money work harder for them. How do you earn more than the measly interest available at the bank? Explore alternatives, from stocks to real estate. There’s plenty of free advice out there, including articles from us like Ask Stacy: How Do I Get Started Investing? and our recent Beating the Banks series.
6. Make more
What you make now influences what you can put away for later. In addition, Social Security benefits are related to lifetime earnings, so making more today will mean bigger checks tomorrow.
Lots of websites, including this one, offer tons of tips to save on everything from tires to groceries, but relatively few on making more money. That’s natural – saving on stuff involves specifics that will work for everyone, while ideas to earn more money often depend on who’s doing the earning.
But no matter who you are, there are ways to make more, from asking for a raise to selling on eBay. See stories like The 5 Best Ways to Make More Money and 8 Weird Ways to Make Extra Money. Then use your imagination and think about things you can do to bring in a little extra bacon.