You won't believe how many Americans saved nothing for retirement last year
One in three Americans saved no money for retirement in the past year
Though Social Security serves as an important income source for seniors, those benefits aren't designed to sustain retirees by themselves. Rather, you'll need independent savings to enjoy a decent standard of living when you're older and you no longer collect a paycheck from work. Ideally, your annual savings target should be 15% to 20% of your earnings so that if you bring home $60,000 a year in salary, you should be setting aside $9,000 to $12,000 in a 401(k) or IRA.
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Of course, hitting that 15% to 20% target is a tall order for some -- especially lower earners who need almost every dollar they make to pay for essential expenses. Still, those who can't afford to part with a large chunk of their income should at least be making an effort to save something, even if it amounts to 2% or 3% of their earnings.
It's therefore somewhat surprising to learn that one in three Americans saved no money for retirement in the past year, according to the May 2020 Simplywise Retirement Confidence Index. If you didn't sock away so much as a dollar for your senior years over the past 12 months, here are some steps you should plan on taking to remedy that. (Granted, right now we're in the middle of a pandemic, so these changes may not be feasible immediately, and that's OK. But apply this advice to our post-COVID-19 world to get yourself on track for retirement.)
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1. Cut back on spending
Under normal circumstances, we all have things we spend money on that aren't actually necessary. Maybe you meet friends at a restaurant for dinner twice a week, or you pay to go to the movies for a night out. While you may not be doing those things right now because of COVID-19, you may need to uphold that practice once venturing out becomes safe again if not indulging makes it possible to fund your 401(k) or IRA. In fact, it helps to set up a comprehensive budget that maps out your expenses and breaks them down into needs and wants. That will give you a good sense of how much retirement cash you can potentially bank on a monthly basis.
2. Consider a second source of income
Right now, it's hard to get or keep a main job, let alone a second one. But once the pandemic is over, it pays to look into an additional source of income whose proceeds you can use to fund your retirement plan. Cutting expenses in your budget will work to a point, but you may burn out after a few months of depriving yourself of the things you love. A second job can make it easier to steadily contribute to a retirement plan without being miserable in the process.
CORONAVIRUS DRIVES RETIREES TO SPEND ‘MUCH MORE’ ON THIS EXPENSE THAN ANTICIPATED
3. Make your savings automatic
If you're really intent on saving for retirement, make your 401(k) or IRA contributions automatic. That way, you won't be tempted to spend the money you're supposed to be socking away. If you have access to a 401(k), all you need to do is fill out some paperwork instructing your employer to allocate a certain amount of money or portion of your earnings to long-term savings. If you're saving in an IRA, find one with an automatic transfer option so that money leaves your checking account each month and lands right in your retirement plan.
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Saving for retirement isn't easy; it requires a fair amount of sacrifice, and you may have periods of life when you just can't do it, like the current crisis. But as a general rule, you should plan on setting aside a portion of your income for your senior years, and the sooner you get into that habit, the more long-term financial security you'll enjoy.