Saving for retirement is a critical aspect of financial planning, especially if you want a comfortable senior life.
That is why even if your budget is tight, you should start planning and saving for your retirement goals today; after all, it’s never too early to start saving for retirement.
Fortunately, even if your budget is a bit tight right now, you can use the following foundational financial principles to start saving for retirement today because the earlier you start saving, the bigger your retirement nest egg will grow.
Remember that it all starts with a realistic budget
Planning is the key to a comfortable retirement; as far as financial planning tools go, nothing beats a realistic budget.
Ideally, you already have a budget. If you don’t have one, easily create one by looking at your recent spending patterns–3-6 months is ideal–and determining your average monthly expenses. Categorize these expenses into essential and discretionary expenses.
- Essential expenses include health care, housing, transportation, and food. Examples of housing costs may include utilities, maintenance, and home repairs. Transportation costs may include gas, public transportation, and vehicle maintenance expenses. Keep in mind the ever changing and increasing cost of living and tailor your budget to reflect the times.
- Discretionary expenses are not absolutely necessary for your survival and may include travel, entertainment, and gifting. How you budget for discretionary expenses will determine how much expendable money you have handling the essentials, saving, including for retirement, and investing in investment opportunities your nest egg.
Think about ‘how much’
How much do you need to save for retirement–or to have saved up by the time you expect you shall retire? How much of your income can you comfortably direct to saving for retirement?
To determine how much you need to save and can save each month, consider these crucial factors:
- Your income.
- Your current essential and discretionary expenses.
- Your desired lifestyle in retirement.
- Your retirement plan, investment portfolio, and the years between now and your intended retirement date.
According to the TIAA, the general rule is to save 10-15% of your income for retirement.
However, play around with this percentage to match your current financial life. The important thing is to ensure your budget has a percentage apportioned to retirement savings.
Take advantage of your employer’s retirement plan
If your current employer offers a retirement plan, such as a 401(k) or a pension, take advantage of these automatic retirement plans and enjoy the offered tax reliefs. Contributing to your employer’s plan is an easy and convenient way to save for retirement right now, even if your budget is tight.
Your employer may offer a company match which is essentially free money. For example, some employers may match your savings up to 3% of your salary or contribute 50 cents for every dollar you save, with a salary cap of 6%.
Make sure to utilize this offer to its full extent if it is available; it can make all the difference to your retirement nest egg.
Consider an Individual Retirement Account (IRA)
If you don’t have access to an employer-sponsored retirement plan, consider opening an IRA. IRAs are tax-advantaged accounts that allow you to save for retirement.
There are two main types of IRAs: Traditional IRAs and Roth IRAs. Choose the one that suits you based on your tax situation and income level, but remember to conduct thorough research and compare things like fees.
Automate your savings
Setting up automatic contributions to your retirement accounts streamlines your saving schedule, which is why it is one of the best ways to apportion a percentage of your income to retirement, even when finances are tight.
Thanks to modern banking solutions, you can automate your retirement contributions without getting off the couch.
Make smart money investments
Because retirement is a long-term goal, you should find ways to invest and grow your retirement savings.
For example, even if you have never invested in stocks and NFTs before, you can easily and quickly start investing in these investment avenues using available options like active investing by SoFi, which is a great way to learn how to invest without paying hefty commissions.
Buying an appreciating asset, like real estate, is another way to invest and grow your retirement savings. This is because once you retire, you can use the asset to take advantage of financing options like equity release funds.
However, no matter which smart investment option you choose, consider all the associated risks and avoid going in blind. Consider working with a financial advisor to settle on an investment strategy that aligns with your risk tolerance and financial goals.
Review and adjust your plan regularly
You should regularly review and adjust your savings and investment strategy to reflect your current financial life. Remember that your income, expenses, or financial goals may change, necessitating an adjustment to your retirement savings plan.
Saving and investing for retirement is an invaluable safety net; the earlier you start, the more time your money has to grow.
By following the key financial principles we have discussed, you can start saving for a comfortable retirement tomorrow on a tight budget today.