According to a recent survey by the Consumer Federation of America and Certified Financial Planner Board of Standards, about half of Americans are behind in retirement savings and only 34% of Americans say will be able to retire by age 65.
As a result, some of us are planning to work longer. But as Dan Kadlec over at Time magazine points out, 57% of people quit work earlier than expected. A job loss, health issue, or the need to become a care-giver for a loved-one frequently derail our plans to work past 65.
So what is the key to painlessly saving for retirement?
Start early, start small.
Consider this: If you are twenty years old, you only need to save $2,587 a year to reach one million dollars in retirement savings by age 65, assuming you earn an 8% return on your investments.
Wait until you’re 30 to start investing and you’ll need to set aside $5,800 annually to achieve your million dollar goal.
But put off saving until age 40 and you’ll be forced to set aside $13,678 a year to reach the same one million in retirement savings. And at age 50 you’ll need to start stashing away an astonishing $36,830 annually to fulfill your million dollar retirement dream.
Clearly time can be your enemy or your friend.
Naturally we assume that we can wait to worry about retirement because we’ll make more money in our 30s, 40s, and 50s which can be used to achieve our retirement goals.
But we often fail to realize that while our incomes may rise as we age, our expenses will grow exponentially as well. Mortgage payments, car payments, and the cost of raising a family all sap our extra earnings.
The lesson – the younger you start the less you’ll need to achieve your retirement goals. If you’re in your twenties, cut back on all the unnecessary expenses. Consider living the first four years after college as if you were still in college. Forgo the temptations of an upgraded apartment, new car, and fab wardrobe. Cook at home instead of eating out. Rent DVDs instead of going to the movies. Anything you can do to squeeze money out of your budget and place into retirement savings will give you a head start that will serve you for a lifetime.
But what if you’re in you’re 30s, 40s, or 50? Remember time can still be your enemy or friend. The sooner you start saving the easier it will be to assure a comfortable retirement. And while you’ll have to stash away much more than you would if you were younger, there are many ways to find the extra cash to fund your retirement goals.
As we touched on before, cut the fat by eliminating unneeded services and extraneous expenses. Make simple changes to your lifestyle like taking your lunch to work instead of visiting the cafeteria or food truck. This move alone could save you $800 a year or more. And consider sacrificing a sacred cow or two. Eliminate the second car, downsize to a smaller home, or cancel you 300 channel cable service.
Retirement is our biggest and most important financial goals. The sooner we start saving for it, the easier the journey becomes.
BMWK, have you started saving for retirement? How do you free up the extra cash to invest in your retirement?