Savings Tips for a Successful Retirement
Written by Inanna Carter
Saving for retirement might seem like a logical goal to prioritize, but based on today’s statistics, only about 50% of Americans are doing so. Experts say we need about 80% of our current income to continue living comfortably after retirement, which is why the best time to start saving is the day you start working!
However, while it’s true that you should begin as early as possible, starting whenever you’re able is much better than not saving at all. On a previous episode of Pennsylvania Newsmakers, CrossState Credit Union Association President and CEO Patrick Conway and TruMark Financial Credit Union CEO Kelly Botti shared strategies and information on planning for retirement. Here’s a breakdown of what they suggest along with a few bonus tips.
Take Advantage of Your Employer’s 401K
Understanding and enrolling in your employer’s 401(k) is something everyone should do, especially if they offer to match your contributions up to a certain percentage—that’s essentially free money added to your retirement savings. And if you changed jobs where you had a previous 401(k), don’t forget about it! Employers often use different companies, so research the difference and decide whether it would be best to keep the funds where they are or roll them over to your new account.
If your employer doesn’t offer a 401(k), there are still some options for you. For example, you could talk to your HR representative about the possibility of launching a retirement program; they may also be able to guide you to additional resources. Additionally, you could consider other avenues outside your employer, such as…
Open an IRA Account
An individual retirement account (IRA) is a tax-advantaged savings plan designed to help anyone with earned income invest in retirement. There are several types to choose from, but the two most common are traditional and Roth. For the former, contributions are generally tax-deductible, but withdrawals in retirement are taxed as income. Conversely, Roth IRA contributions are made with money you’ve already paid taxes on, meaning you get no up-front tax break but your withdrawals are tax-free.
If any of this is confusing, don’t fret! Find and talk to a free financial counselor, such as at your local credit union, for help understanding the details of IRAs and which might work best for your circumstances. If they don’t offer that service, they are still an excellent source to steer you in the right direction. “That’s the role that credit unions can play,” said Conway. “There’s a lot of resources out there, and we encourage consumers to take advantage of their trusted partnerships that they have.”
Be Consistent
The key to saving is staying consistent with your budget, which can sometimes be difficult. Luckily, there are steps you can take to get there. A great start is trying a proven method, such as the 50/30/20 rule. This involves putting 50% of your paycheck toward needs (e.g., rent, groceries, bills), 30% to wants (e.g., eating out, games, trips), and 20% to savings (e.g., a retirement account).
Of course, you don’t always have to use these numbers. If you feel you’re behind on retirement savings and want to catch up, then swap the 30% and 20%. Or if you don’t pay much in rent or have few bills, push the needs down to 30% and the savings up to 50%. Everyone’s situation is different, so find out what works for you and stick to it!
Hold Back
A big part of being consistent is learning to adjust your spending habits as needed. Even small purchases can add up quickly, which means less money you’re able to contribute to your retirement. For instance, rather than buying the latest electronic gadget, video game, or book the moment it comes out, track the sales and purchase it when there’s a discount. And instead of going out to eat three times a week, aim for once a week or three times a month. It might not be easy at first, but steadily introducing these small habits will make a world of difference in the long run.
Saving for retirement is one of the most important things you can do to help secure your financial future, giving you the opportunity to live comfortably after decades of hard work! As Botti said, “Retirement should feel like a reward—not a penalty.” Check out our GROW blog for more retirement tips, and lean on your credit union to help get you on track.