Can You Save For Retirement When Living Paycheck to Paycheck?
If you’re struggling to pay your bills every month, retirement may look like an impossible dream. However, if you haven’t saved much for retirement, know that you’re not alone. According to the 2016 study from GOBankingRates, about one-third of Americans have little or nothing saved to their retirement accounts. The survey also showed that about 23% have less than $10,000 saved up for retirement.
It’s easier to say you won’t save for retirement until you start earning enough. But that’s a trap several others have fallen into. Before you know it, you’re a few years to retirement with nothing saved up.
Even if you barely make enough, it’s important to start keeping aside a small portion of your income for retirement. It may seem like a tough job, especially initially, but it’ll become easier subsequently. When combined with the power of compound interest, the few dollars you save every month will grow into thousands of dollars.
Start Saving Early
The best time to start saving is decades before retirement so you’ll have enough time to accumulate more interest. The earlier you start saving, the less you’ll have to save every month until you reach age 65 or any age you choose to retire.
For instance, if you save $15 per week, that will be $60 monthly. If you’re earning 7% in annual interest, you’ll have $100,000 at the end of 35 years.
On the other hand, it may be harder to save up to that amount if you delay saving. If you want to save $100,000 and only have ten years until retirement, you’ll need to save as much as $600 monthly, assuming you earn the same 7% in interest during the period.
Retirement savings isn’t an all-or-nothing game, so instead of putting off saving entirely until you have more money, consider starting to save as little as you can for now, and increase your savings as you earn more.
How to Maximize the Cash You Have
It’s essential first to take out time to understand the importance of retirement savings, as it’s what may drive you to keep up with your savings goals. Look through your budget and monthly expenditures and cut down on some areas. You can decide to start eating at home instead of dining out to save money. You can skip morning coffee, move to a smaller space, switch to cheaper insurance packages, internet, TV, and more.
If your employer offers 401(k) matching contributions, raise the necessary funds required to take advantage of it to double your savings. For instance, if you’re earning $50,000 annually, your employer matches 100% of your 401(k) contributions up to 3% of your salary. That means your employer will contribute $125 monthly or $1,500 annually to your 401(k). If you contribute the same amount, it will bring your savings to $250 monthly.
Even if you aren’t able to invest your full employer’s match, invest whatever you have; otherwise, you’ll be leaving money on the table. If your employer doesn’t offer a 401(k) or if you are self-employed, consider an individual retirement account (IRA). It comes with the same benefits as the 401(k), except for the employer match. IRAs also have lower contribution amounts. However, if you invest continuously, you will save up six figures in the next couple of years.
Saving for retirement is hard enough, but it is even more difficult when you don’t earn sufficient cash. Fortunately, you don’t need so much money to start saving.
