Many people struggle to think of long term financial goals, like saving for retirement, because the here and now are often complicated. Many people struggle to maintain monthly financial obligations, let alone put any money away; the median salary is no longer enough to sustain the individual. While government programs exist to help the underprivileged or underrepresented, these programs rarely allow for the luxury of a savings account.
Planning for the future should never be seen as a luxury. Even those with little to save should consider the benefit of compounding interest on whatever they can save. Old age is not a friend to anyone; unfortunately, the slow decline of physical capabilities means limitations in the workforce, leading to necessary retirement. While there is no saying when retirement needs to occur, every individual will require money to survive the rest of their life outside of work. Establishing retirement savings is a critical part of maturing and one you cannot afford to overlook. Here are eight tips on how to start saving for retirement.
1. Start When You’re Young
The best advice around saving for retirement is to start when you’re young. The younger you are, the easier it will be to establish a healthy financial habit and contribute more over time. As you get older, the contributions to your retirement account, especially if just starting, need to be more generous. If you start later in life, you may want to talk with a financial advisor to determine the contributions you should make and the best savings accounts or investments outside of a 401(k) or Roth IRA.
2. Create a Realistic Budget
People living with tight finances often don’t have the luxury to budget for long-term goals because their income is only enough to cover immediate expenses. Unfortunately, living paycheck to paycheck will not provide security throughout your life, unless you are in a career you can continue without retiring. Realistically, your income should fall more in the range of a 50/50 split. 50% of your income going to needs, and the other half divided into wants and savings; a typical division is 30% wants and 20% savings.
3. Cut Down on Frivolous Spending
Many people would love to use the ideal budget above, but doing so requires making cuts and diligent tracking. When you are in the cycle of barely scraping by each month, it’s difficult to see where you can trim the fat. Do you have cable, buy coffee, or eat fast food? All of these expenses are luxuries. While no one is telling you to eliminate them, reducing your spending can make a significant difference, providing some relief.
4. Seek Professional Help
Not creating a budget — or not actually sticking to it — pretty much ensures you overspend on unnecessary items. A budget is like a road map that points you in the right direction. A budget does not need to be complicated or fancy. You simply need to include all of your expenses and income sources. You cannot spend more money than you have coming in each month.
5. Contribute to Retirement Savings
Do you have a retirement savings account or program, such as a Roth IRA or a 401(k)? If so, you should contribute the maximum to these accounts annually. You may also want to invest in high-yield savings accounts to maximize your dormant savings. However, understand that some of these accounts lock you into a term length, meaning that you may not access the money for three months, six months, or longer, depending on the account type and institution.
6. Make More Money
Making more money is obvious and can seem a little condescending, but people often overestimate the level of difficulty. Many people think that to make more money, they need to find a second full-time position or add a substantial second income. In reality, earning an additional $100 to $200 per month can make a significant difference, even if you only put that money toward your retirement savings.
7. Get a Job With Excellent Retirement Benefits
If you are starting retirement savings from scratch as an older individual, it is best to secure employment with a company offering a 401(k) match program. Having a company matching your contributions allows you to save a more significant sum every year. If your company does not offer these benefits, consider investing in some other retirement fund type.
8. Limit Credit Card Use and Pay Off Debt
People living payday to payday often struggle with credit card debt. What starts as a necessary tool for stretching your budget between checks quickly spirals into compounding interests, late fees, and debt collections. The best path forward when saving for retirement is to limit credit usage, pay down debt, and reduce unnecessary spending.
Other Considerations in Planning for Retirement
When looking ahead to retirement, I’m sure more of us would like to be relaxing by the beach enjoying sunshine and no responsibilities. Unfortunately for some, the road to retirement and relaxation may not be that straightforward. In the event of a health emergency, are you prepared? Do you have a solution in place to ensure you can afford your care and let your loved ones focus on support you, not financing your treatment? Critical Illness Insurance may seem like an unnecessary monthly expense now, but nobody knows what the future holds. A personal loan through LoanConnect can help you pay off medical expenses, but you may not be in a position to pay back that loan.
Coverage through a provider like PolicyMe allows you to focus on your recovery, not your finances. Unlike life insurance, the payout from critical illness insurance goes to you if you become ill, not a beneficiary. You can use the money how you see fit – from replacing lost income to paying for necessary treatments. PolicyMe covers 44 conditions, more than any other provider in Canada; 27 critical illnesses and 17 early-stage conditions. You can apply from home with a few questions, receiving an instant decision. There is no obligation to take the coverage, you are only charged if you hit “go”. With coverage up to $1 million, it’s worth knowing your options. Don’t let a medical emergency drain your retirement savings before you can enjoy them.