At least once a year (especially tax season), we are reminded that we should be saving for retirement. It feels like climbing an absurdly high mountain to try to save any amount of money for a future that could be near or far away. Surmounting any mountain requires planning, but we also have to want to get to the top. Everyone wants to have a future without financial difficulty, but how can we assess our current situation and find a way to simultaneously fund both the present and the future? To avoid getting overwhelmed consider using saving for retirement’s “best practices” as inspiration rather than an absolute prescription for how your retirement savings must be managed.
Practical Practices
How often are we reminded to “save up for a rainy day”? A lot of us have a hard time relating to this rainy day approach because of the cycles of high and low employment seemingly on fast-forward in the last several decades. But, the technique remains a good and practical one.
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Factoring in your age, income, investments, and other points of consideration can result in a big difference between what is your "planned" retirement savings in comparison to your "required retirement savings.
By depositing directly to a separate account from your paycheck, you never see the specific amount going in or out of your checking account, so it does not feel like a “loss” from your spending account. If you need the savings to be readily available in case of emergency, then you could consider putting it into a money market account, for example, which may have a higher interest rate than a standard savings account. When the amount reaches a specific threshold, say, $5,000, you could take half and put it into your individual retirement account (IRA). The emergency fund is still there, but your retirement savings gets a regular boost.
Another highly practical option is to make the most of your employer’s 401k retirement savings plan, up to the amount that your employer matches. While 4% of your income (a common match amount) may seem like a large amount to have subtracted right off the top of your paycheck, consider that your employer is matching the amount. True, you won’t see the money immediately, but skipping this option is leaving money on the table. Examine your investment options (if your employer’s plan offers several) to be sure that the fund that you choose for your 401k money is a good match for your values and your preferred risk profile.
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Planning Your Savings Behavior Can Provide a Big Boost
Beyond these two basic approaches, there is a world of ideas to gain inspiration from. Whether your employer offers a retirement investment program or not, you do have some other options to keep your savings growing.
For example, we often think of sudden influxes of money as windfalls that we can use as “mad money,” to make purchases we wouldn’t generally make. Taking a slightly different approach could give your retirement a boost. By putting a pre-planned percentage of your windfall into an IRA, you still get a little extra spending money fun money boost, but you also give your future self a financial boost. If you typically receive an income-tax refund, you might consider using your return as your annual IRA investment as well.
Second jobs are often taken as a means to get extra money for anything from holiday spending to funding your retirement. Second jobs can be difficult to manage on every level—time, scheduling, energy, and family balance. Sometimes, though, very short-term opportunities to earn a bit of extra money do present themselves. Local events and festivals may offer such chances without the aggravation of extended scheduling difficulties. Short-term, limited holiday work may also fit into this category. Treat this extra income the same way you would treat a windfall; take a percentage for personal use and put the rest into your retirement savings. You could essentially fund the future without burdening the present too much.
These ideas may not fit your situation exactly, but, if you take the chance to think about timing and/or possible windfalls, then you are on the way to mapping your retirement savings path.
Smart Money Strategies
Saving for a retirement may mean having to “up your game” when it comes to managing your money. Here are a few helpful articles with related tips for saving and spending smarter.
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One more thing: you may have “old” IRAs or 401k accounts from previous places of employment. Be sure that you are taking advantage of any potential of rollovers. When you roll your prior retirement investments into a current retirement account, you can often consolidate your investments, making it easier to manage.
Whichever path you take to save for your retirement, the greatest challenge is often changing our attitude in believing the funds are trapped and instead, consider them for the future. You’ve climbed the mountain at that point, and now you will have a comfortable vantage from which you can enjoy the view.