How Your Current Financial Decisions Impact Your Retirement
Most of us know that we should be saving for retirement. However, very few of us know how much money we will need. In 2021, 24/7 Wall Street, a partner of USA Today, pulled data from the Bureau of Economic Analysis, the Bureau of Labor Statistics, and the Institute of Health Metrics and Evaluation to determine the average cost of a comfortable retirement in each state.
The average American is expected to live 84.4 years. For simplicity purposes, we will assume 65 as the retirement age. This means most retirees will live 19.4 years after they retire.
The typical spending of a retirement-age individual varies from state to state. However, on a national level, an American spends an average of $50,220 a year once retired.
If we look at that number and add a little extra for unforeseen expenses, the average American will need $1,120,408 for a comfortable retirement.
If the thought of saving over one million dollars seems incredibly daunting, don’t worry. You are not alone. According to Annuity.org, 48% of the workforce does not believe they make an adequate amount to properly save for retirement. Additionally, in a 2022 article published by Any Estimate, it was stated that 37% of Americans are not currently saving for retirement. As for those who are saving, the majority fall short of conservative targets.
Many experts agree that the US is facing a retirement crisis. With this information in mind, saving additional money for your retirement is crucial. While it is best to start early, it is never too late to begin strategically saving for retirement. By proactively examining your habits and implementing a few new strategies in your day-to-day, you can grow your retirement savings more quickly than before.
Live Beneath Your Means
The most important strategy when it comes to saving money is learning to live beneath your means. Ensure your living expenses are less than what your income allows. If you are already living beneath your means, that’s great. However, make sure that you are putting the extra money into a savings account and not spending it on anything extravagant down the road.
Whether you live paycheck to paycheck or already have extra money after all living expenses have been taken care of, there is always room for additional savings. It can be helpful to track your spending habits for 30-60 days. Look at your needs vs. wants. Then assess areas where you can cut back. Some questions worth asking may include:
- Are you purchasing generic when you can?
- Can you cut out your daily trip to the coffee shop?
- Do you need to pay for that upgraded membership?
- Is there an alternative route to any toll roads you travel?
- Do you frequently spend on unnecessary “things?”
- Are you cooking at home more than eating out?
- Can you cut back on groceries?
- Are you using discounts and coupons?
- Is every travel opportunity a must?
- What free weekend activities are available in your community?
The objective of living beneath your means is to see how much money you can save instead of spending.
Stick to a Budget
While creating a monthly budget can be monotonous. Sticking to a budget is one of the easiest strategies for saving money. A budget is simply a game plan that helps you achieve your financial goals. To budget effectively, you want to write down all monthly payments. Then account for your total monthly income. You will subtract your total monthly income from your monthly bills. The amount left over should then be divided among savings and other variable living expenses such as groceries, gas, personal care, entertainment, and additional spending. It’s best to decide what you want to allocate for savings first and then figure out the remaining allowances.
Pay Down Debt
Debt is financial enslavement. Unfortunately, the majority of Americans have some form of consumer debt. We are tempted by minimum monthly payments that may seem insignificant, but the interest is where we dispose of so much unnecessary money. If you have substantial debt, you want to pay it down as soon as possible. Debt consolidation is a great option to lower interest rates and pay off debt more quickly.
If you plan to pay off debt without consolidating, it’s wise to start with the payment that accrues the highest interest and move down from there. Once that debt is consolidated or paid down, you will have extra money to contribute to retirement savings. Speaking with a financial advisor or attorney is the best way to ensure you know all options available.
Decrease Fixed Expenses
There are many bills we pay each month without thinking twice. However, it’s important to reassess certain expenditures frequently. Specific payments can be reduced. You may be paying for forgotten subscriptions. And it might be time to get a new quote from a new or existing provider.
When reassessing expenditures, you may ask yourself the following questions:
- Can I get a lower quote for any of my insurance policies?
- Can I save by bundling policies or services?
- Can I reduce my current phone plan or cable service?
- Are there more affordable service providers?
- Am I paying for subscriptions that I am no longer using?
- What payments are automatically debited from my account?
Refinance or Downsize Your Home
Typically, our most expensive monthly payment is the mortgage. If saving for retirement is a priority, you may want to reassess where you live. If you have substantial equity in your home, it may be beneficial to downsize sooner than later. If you are not quite ready to relocate, a refinance may be an option to lower your interest rate and monthly mortgage payment by a substantial amount.
Automate Your Savings
Another smart way to better your saving habits is to automate your savings. This is very convenient for those who struggle with depositing money into savings each month. One option is to have a portion of your paycheck deposited into a retirement savings account, which is a form of investment.
Another option is to set up a part of your paycheck to be deposited directly into your savings account. By depositing money directly into savings, the temptation to spend it is minimized, and healthy financial habits can be effectively implemented.