Back when company pensions were a thing, saving money for retirement was a given. Now? Not so much.
Pensions are rare. The cost of living is increasing. People are living longer. And scores of Americans struggle to save more than $1,000 for a rainy day, much less hundreds of thousands for retirement.
Of those with retirement savings, most probably don’t have enough. A study from Northwestern Mutual found that Americans with retirement funds have an average $84,821 saved. That’s troubling considering most experts say retirees should have more than $1 million stashed away to last during a 30-year retirement.
The numbers are bleak, but there is hope. Even if you’ve put off saving for the future, you can start building your retirement nest egg today. Here’s how.
Take the free money
If your company offers a 401(k) match for employees, take advantage of it and max out your contribution. For example, let’s say your company matches 50 percent of your contributions up to 6 percent. If you contribute a full 6 percent of your salary to your 401(k), the company will throw in an extra 3 percent. It may mean a little less in your paycheck every two weeks, but it’s free money that can make your retirement a bit more cozy.
Over the age of 50? Go here for more info on how catch-up contributions can net you more savings.
Find other investment vehicles
Don’t put all your eggs in one basket. Company 401(k)s are great, but they shouldn’t be your only source of retirement income.
Consider contributing to a tax-free investment that earns interest, such as a Roth IRA. Not only do your individual contributions grow your IRA, but it earns compound interest, which allows your balance to grow even if you’re unable to contribute. Just be aware that Roth IRAs have contribution limits depending on your age and income. Find more info here.
You can also invest in a municipal bond, securities backed by local governments that give you a tax-free payout twice a year and then return your initial investment on the bond’s maturity date. Municipal bonds are considered low risk, but can be subject to default if the municipality securing the bond declares bankruptcy or can’t fulfill its debt obligations(side-note:default rates are rather low). You can find more information here.
Maybe you want to give the stock market a try. You can invest in a mutual fund, a pool of money lumped together in one huge bundled investment. Those bundles may include stocks, bonds or both. You can buy shares of a mutual fund and earn returns in cash dividends or capital gains. There’s a lot more to it than that; this will help you understand it all.
There are other investment accounts that can help finance your retirement. Here’s a list.
Invest your extra income
Got a side hustle? Looking for a raise? Hoping for a bonus? All those are potential sources of extra income that you can put into the investment accounts we discussed earlier.
Not sure about investing yet? No problem. You can store your money in an interest-bearing savings account, which gives you returns by earning interest on money you deposit. And you don’t have to step foot in a bank to set one up. You can find a rundown of the best online savings accounts here, and shop for the ones that yield the highest returns here.
Tighten your spending
No one reallylikes the idea of reining in their spending. That’s probably because most people are thinking about the things they have to give up to do it. But cutting your expenses can free up what you need to maximize contributions to your investment or savings accounts.
The changes you make don’t have to earth-shattering. You can cook at home more often instead of eating out. You can downsize your home or car. Or, you can pay cash more often instead of using a debit or credit card.
Delay your retirement
The idea of working longer probably makes you cringe. Think about it this way: each year you continue to work, you get another year to earn income and contribute to your retirement accounts. That’s one more year you can hold off on withdrawing your Social Security benefits, which increase every year you wait, up until age 70.
Looking for more retirement savings strategies? Read this blog on the nine best ways to invest for retirement when you’re behind.