Nervous About Not Having Enough Retirement Savings? 4 Things You Can Do Right Now
August 5, 2016
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Maybe you already contribute to a 401(k). Or maybe you've been funneling whatever you can into an IRA ever since you got your first real paycheck. And yet, there’s always that nagging voice inside you saying that you could be doing more.
Truth is, if you’re like most Americans, you very well could be: A March 2016 study by GoBankingRates.com found that 56% of Americans have less than $10,000 saved for retirement — with one in three saying they have absolutely no retirement savings to speak of.
Yes, those stats are a little unnerving, and maybe they even mirror your reality. But rather than bury your head in the sand, use this as an opportunity to think about how you can help boost your retirement savings.
Not sure where to start? We tapped financial planner Christopher Pimpo, CFP®, for some small things you can do now to help ramp up your retirement-planning game — and feel that much more confident about building your nest egg.
1. Create a Schedule to Automatically Increase Your 401(k) Contributions
Already putting enough into your retirement account to take full advantage of your company’s 401(k) match? Excellent. Ready to do more? If your company offers it, then consider enabling an auto-escalation feature, which will increase your contributions by a small percentage periodically so that you’re boosting your nest egg without feeling the pain of a noticeably smaller paycheck.
“Maybe it’s increasing your contributions every year by 2% or every six months by 1%,” Pimpo says. “Maybe that’s an additional $70 gone from your paycheck but it’s likely you won’t notice that.”
Pimpo can speak from experience; he recalls setting up an automatic 2% increase to his 401(k) contributions and then promptly forgetting about it until well after it went into effect. “It took me about a month and a half to realize my paycheck had dropped by $100.”
Of course, it probably goes without saying that you have to choose a frequency and percentage increase that you’re prepared for. “You want to create that breathing room and build a budget that takes those retirement savings into account,” he says. If you’re using up every penny of your paycheck, you could be caught off-guard when the escalation kicks in.
And a note for those who don’t have access to a 401(k) at work or prefer to save in an IRA: You can set up a direct deposit into your account every month and if your bank or brokerage offers an auto-escalation feature, be sure to take advantage of it. If not, then set a calendar alert for when you’d like to adjust the contribution amount.
2. Use Bonuses or Extra Earnings to Invest in Your Retirement
If you worked extra hard this year and expect to get compensated for it come bonus time, think about using that as an opportunity to funnel some of that windfall into your retirement account—perhaps even at a larger percentage than your current elections.
If you’re unable to set a separate retirement allocation for your bonus, you could try to request a temporary increase of your retirement contribution with human resources, then drop back down to your normal percentage after the bonus has hit.
For example, if you typically do a 5% contribution to meet an employer match, consider raising that another 5% before the pay period in which you expect to receive your bonus, so that 10% of that extra money goes into your 401(k). “That can help you stash an additional couple of hundred, or even a few thousand, into retirement, depending on the size of your bonus. And that could compound so much over time,” Pimpo says. “It’s a quick way to get additional money into your 401(k).”
3. Avoid Lifestyle Creep by Putting Pay Raises into Savings
Let's say you've just received the good news from your boss that your well-deserved raise is on its way. Before you start daydreaming about all the things you’re going to do with the extra money, take a moment to think about future, retired you.
“With a lot of people, as you tend to make more money, you tend to spend more money,” Pimpo says. “But once you’ve identified a budget that you can live off of, think about maintaining your existing lifestyle and putting the extra money toward retirement.” In other words, if nothing significant in your life has changed and you don’t actually have to boost your spending, why not redirect that 3%, 5% or 10% paycheck bump into retirement so it can grow for your golden years?
Think about it this way: If you find you have to play retirement catch-up later, it’ll feel that much harder to boost your contributions after you’ve taken on a bigger mortgage or pricier car payment. By maintaining your pre-raise standard of living, “you’re making progress to save more without having to make adjustments to your lifestyle,” Pimpo adds.
4. Treat Your Retirement Contributions Like a ‘Bill’
There’s nothing like the thrill of sending in a final loan payment or getting rid of troubling credit card debt. But as with getting a pay bump, it might be worth checking in on your nest egg before you start earmarking that cash for other things.
For instance, if you’ve lived with the reality of a $300 monthly student loan payment for the past decade and have grown accustomed to having that as part of your budget, consider re-directing that $300 into a retirement account — you’ll get the dual satisfaction of knowing you’re college-debt-free and that you're helping to inch closer to your retirement dream life.
Often, family and life responsibilities can feel like a hindrance to building your nest egg, but there’s a way to flip the script on those costs, too, says Pimpo. Childcare, for instance, can be a big burden on a household budget in your children’s early years. “But once [your kids are older] and part of those daycare expenses come off your budget, that could be additional money you put toward retirement,” he says. “Think of all these costs as a chunk of money that will soon be available to put toward your nest egg. Even if you feel like you’re only making small steps to save now, it’s about getting as much done as early as possible to take advantage of compounding growth.”
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.