Here’s a sobering statistic for you: Nearly a third of American adults have no retirement savings at all. As in zero — not a single red cent.
And while that number includes young Americans just starting their careers, nearly one in five Americans aged 55 to 64 have no retirement savings. These numbers come directly from the Federal Reserve and are accurate as of last year.
Most people are not “ready” for retirement in the same way that most are not “ready” for marriage or parenthood. It’s a major event for which your previous life experiences cannot fully prepare you — and it can be scary. For many people, retirement will mean a major reduction in income — and in living standards — particularly if you are depending on Social Security for most of your income.
Not everyone can be the “millionaire next door,” but by the age of 55, you should have at least a little something put back for retirement. If you don’t, something clearly went terribly wrong in your financial planning.
If you find yourself in this situation, it’s time to make major changes. While it is never “too late” to start saving for retirement, the older you are, the less time you have on your side. Let’s take a look at some ways to turbocharge your savings. This is critical for anyone approaching retirement, but it’s also sound advice for younger Americans wanting to get their financial houses in order at an early age.
Make it Automatic
Saving for retirement requires a certain discipline that, frankly, most of us don’t have — myself included. This is not a criticism; it’s a fact. Our expenses have a way of expanding to match any increase in income. This seems to be particularly true once kids come along. When I was single, and even after I married but before we had kids, I was an aggressive saver. But all of that discipline went out the window when my kids were born. I admit I’m a total softie and find it impossible to tell my kids no.
The best way to get around the impulse to spend every cent you earn is to simply make your saving non-discretionary. This is fantastically easy if your employer offers a 401k plan or equivalent savings vehicle. The savings come out of your paycheck before they ever hit your checking account. So, the easiest and most effective way to save for retirement is to raise the percentage of your salary that gets deferred into your 401k.
For tax year 2014, you can contribute up to $17,500 to a 401k plan, not including any employer matching. And if you’re age 50 or older, you can contribute an additional $5,500. If you can’t realistically save that much immediately, ease into it over the course of a year or two by upping your contribution percentage a little each month. Or at the very least, keep your current living expenses constant and allocate any raises or bonuses to your 401k savings.
OK, but what if you don’t have access to a 401k? No problem. You can create the same automatic savings by instructing your payroll department to split your paycheck, sending a portion to a separate savings account.