Every worker should be prioritizing retirement savings to ensure they have a secure future. Investing for your later years is important because you can’t live on Social Security alone. You’ll likely need to rely on your nest egg to make up the difference between the income you need and the amount your retirement benefits provide.
Unfortunately, recent research from the Insured Retirement Institute finds most people are falling far short of investing the amount they need for their investments to provide for them after their paychecks stop.
Workers aren’t doing enough to save for their later years
According to the Insured Retirement Institute’s data, an estimated 33% of workers are saving less than 5% of their income for their retirement.
Now, while it’s good news many people are saving at least some money, the bad news is that investing less than 5% of earnings is far below what you’ll likely need to support yourself as a senior. In fact, while the traditional rule of thumb was to invest at least 10% of your wages for your future, even this probably isn’t enough given lower projected future returns, longer lifespans, rising healthcare costs, and the erosion of Social Security’s buying power.
Instead, the majority of future retirees probably need to err on the side of investing about 15% to 20% of earnings, including any employer match, if they want to maintain a comfortable standard of living in their later years.
How can you save more for retirement?
While it’s easy to say that workers should save more than 5% of their income, it’s harder to do that in practice. In fact, if it were easy to invest a sufficient amount, it’s likely most people would already be doing that.The good news is, there are some techniques many people can implement that can help bring their savings rate up.
To boost the amount of your wages that you’re putting aside:
- Save your raises. Any time you get a salary increase, it should be diverted to investments before you get used to the extra money – especially if you’re currently saving less than 5% of your income. You aren’t yet reliant on the extra money so you can continue living on your current budget and contribute your newfound earnings to your retirement plan.
- Inch up retirement account contributions. If you can increase your retirement account contribution slowly over time, you can gradually phase in the necessary lifestyle changes to invest 15% of income. For example, try upping your contribution by just 1% and see if you can still live without debt. You probably won’t notice the slight difference. Once you get used to that, then increase it by another 1%. Keep going with this until it becomes impossible to make your budget work or until you’re contributing the amount you need.
- Make one big change. Tons of small budget cuts can be hard to sustain, but one big lifestyle change can be easier. For example, if you downsize to a smaller house or cheaper used car, you can divert more money to retirement savings and should hopefully acclimate quickly to your new circumstances without constantly having to deprive yourself of small pleasures.
If these approaches don’t work for you but you’re among the 1/3 of Americans contributing less than 5% of your income to retirement, it’s important to find some solution that will allow you to invest more. You’ll need savings in your later years, and the sooner you start investing enough of your income, the easier it will be to build that nest egg.