Recent surveys have shed light on the challenges Americans face when it comes to saving for retirement, particularly in a time of rising inflation. The American Association of Retired Persons (AARP) found that 70% of Americans are concerned about prices increasing faster than their income, leading many to rely on debt and carry higher credit-card balances. The Employee Benefit Research Institute (EBRI) also revealed that 83% of people are worried about the increasing cost of living, which is making it harder to save for the future.
Despite these challenges, here are two straightforward strategies that could help you build your retirement savings:
- Pay Yourself First
While you must prioritize essential expenses like housing, healthcare, and food, it’s equally important to prioritize saving for retirement. Even if you can only set aside $25 per week or $100 a month, it adds up over time. Small sacrifices, such as cutting out a daily coffee or unused subscriptions, can help you save without significantly disrupting your lifestyle. For example, if you’re 40 years old with 25 years until retirement, investing $100 a month in an S&P 500 ETF could grow to approximately $123,000 by the time you’re 65. This assumes a 10% annual return, which is the historical average for the S&P 500. With discipline and consistency, paying yourself first can make a significant impact on your retirement savings. - Maximize Your Company Match
Many people miss out on free money from their employer-sponsored retirement plans because they don’t contribute enough to get the full company match. On average, companies offer a match between 4% and 6% of your salary, but only if you contribute at least that much yourself. For example, if you’re 40 years old, earning $50,000 a year, and only contributing 2% of your salary to your 401(k), you might accumulate around $316,000 by retirement at age 65. However, if you increase your contribution to 4% to get the full company match, your retirement savings could double to approximately $632,000. The difference in your paycheck would be about $19 per week or $76 per month, which is a small sacrifice for the long-term benefit. If you don’t have access to a company retirement plan or 401(k), saving can be more challenging, but upcoming legislation might provide new options. We’ll cover retirement saving strategies without a 401(k) plan in a future article.