Resolution #7 – Make Retirement Savings a Priority
Published on 1/7/2020
4 Ways to Make Retirement Dreams a RealityMost Americans acknowledge the need to save for retirement. But there is a huge difference in recognizing something is important and doing something about it.
According to a recent Fidelity survey, half of Americans don’t have enough retirement savings to cover their basic necessities. The same survey found that in order for their income to cover basic retirement expenses, 28% of respondents would need to make significant lifestyle changes.
But what if there isn’t much wiggle room in your income to make changes? In 2017, 78% of full-time workers told a CareerBuilder survey they live paycheck to paycheck.
What can the average hard-working American do?
The good news is experts agree it’s never too late to start saving. Here are four steps you can take today to begin building retirement savings.
Make saving for retirement a priority. The earlier you start saving for retirement the better. Start by saving 10% of your income. This may sound impossible; however, with a little discipline, it is possible. Keep in mind that experts say retirement savings must be the first priority, not the kids’ college educations. Consider these strategies:
- Start with your next raise. When you get a salary increase, instead of upgrading your lifestyle, use it to fund your retirement. It is an easy way to save that won’t impact your existing budget.
- Use your tax refund to boost your retirement savings. Deposit your tax refund into a traditional IRA or Roth IRA.
- Cut out guilty pleasures. Whether its food delivery service or mocha lattes, taking an honest look at your splurges may help you identify funds that could be used for retirement savings.
- Explore ways to reduce expenses. Make sure you are getting the best deal on insurance, mobile phone and internet service. See if there are services that you can negotiate better pricing.
- Take advantage of your employee benefits. Does your employer offer flexible spending accounts or have a health savings account matching program? It pays to find out what your employer offers that might be able to help you keep more in your pocket.
Open an IRA. Establish an individual retirement account (IRA) to help build your retirement savings. You have two options: a Traditional or Roth IRA. The key difference is how contributions impact taxes. With a traditional account, contributions are generally pretax, meaning your taxable income will be reduced and your tax bill will be lower in the year you make them. On the other hand, you'll typically pay income taxes on any money you withdraw in retirement. A Roth account is the opposite. Contributions are made with money that has already been taxed (your contributions don't reduce your taxable income), and you generally don't have to pay taxes when you withdraw the money in retirement. For specific guidelines on what is best for you, consult your tax advisor.
Create a roadmap for retirement. Even if retirement seems like it is a long way off, having a plan is an important component to success. It is impossible to reach a destination unless you know what you’re going, so take a moment to determine what your retirement life will look like. For example, are you going to retire early and travel the world or downsize and enjoy a low key lifestyle? Once you have a clear picture of your destination, you can set up milestones to reach it.