Posted on 02/14/2015 7:34:46 AM PST by Kaslin
We've heard a lot about how far behind Americans are in saving for retirement, but we don't often hear many solutions that the average family can actually afford. That's how we landed on a $300 a month figure. It's a challenging number, since few of us can find an extra $300 a month without some effort and sacrifice. But it’s doable, and it's enough to make a real difference in your nest egg by retirement.
1. Deal With Realities, and Control Your Emotions
A lot of folks are debating whether or not they'll ever be able to squeeze anything out of their budgets for retirement savings. We get it. One of the main reasons people hesitate to save for retirement is that they're focused on meeting day-to-day obligations.
Christina is a mom of five kids in Alexandria, Va. Two of her children have special needs, so she knows what it's like to be wary of "spending" money on retirement savings. "It's been hard to save for retirement, because I always feel like I need to have more money in the bank since we don't know what's coming with the kids," she said.
"But I know that if we don't save now, we won't be able to take care of ourselves in the future, let alone them, if they need it," Christina added. So she and her husband have made retirement savings their priority. They're debt-free, have an emergency fund and watch expenses like a hawk. They've also come to the tough, but correct, decision to save for their retirement instead of building up a college fund for their children.
"We feel that the best gift we can give our children is a strong work ethic, good money sense and not having to care for us when we get old," she said.
2. Refine Your Budget and Work Toward Your Goal Over Time
Making up your mind to put retirement savings at the top of your to-do list is just the first step. Now you actually have to find the money. Dave Ramsey, along with many retirement experts, recommends you invest 15 percent of your income just for retirement. That can sound like a huge chunk of cash, especially if your budget is so tight it squeaks.
When Katie quit work to stay home with her kids, her family in Mason City, Ill., had to learn to live on just one income. After such a drastic cut, they had to face the fact that they could not afford to put away 15 percent of her husband's income for retirement. But they didn't stop investing just because they couldn't reach the 15 percent goal.
"We were just doing as much as we could," Katie explained. "However, each month we were able to tweak the budget a little more — stuff like changing his W-4 and our cell phone package. Now, we can afford 15 percent for retirement, contribute to college funds and increase our fun money!"
Judy from Spring Branch, Texas, started her retirement savings plan nearly 20 years ago by contributing just three percent of her salary. Then, each year she received a bonus, she diverted most of it to her 401(k), and every time she received a raise she put a third of that into her 401(k), as well.
"It did not take long to max out my 401(k)," Judy said. "At age 51, my husband and I have two kids in college with the costs completely funded. We are at the point of severe wealth building, and our giving has increased significantly. It’s a great feeling to know that I could retire at age 60 if I choose.”
3. Let Go of Past Regrets
This is where a lot of people get stuck. They see saving for retirement as a mountain that's too large to climb after a certain point in their lives. They give up before they even begin.
If you're overwhelmed by the prospect of building a nest egg at the eleventh hour, go back to the first step and separate your realities from your emotions. One of the best ways to do that is to get all the facts. Where do you really stand now, and where could you be if you started saving with gazelle intensity?
*Used with permission from Ramsey Solutions. For more information, visit www.daveramsey.com.
How do real people save for retirement?
Sign up for the 401K, contribute the 3-6% for a company match, and since it is pre-tax money, your take home only goes down 2-4%. That’s 3-9% of your income equivalent now saved for retirement, depending on employer match.
Decide that the security of saving for retirement is worth more than the eating out, app subscriptions on the phone, premium cable, buying a new car as soon as the existing one is paid off. Put any money from those categories into saving on an automatic plan, so that you are putting it back.
As Suze Orman says, if you save after everything else, you’ll have nothing left. Pay yourself first, pay something automatically to the savings goal, and you’ll adjust the spending down.
As a lot of people learned with Enron or Bear Sterns, don’t put all your 401K contributions in company stock. If you get company stock matching, as my employer once did as the 401K match, sell it as soon as you are able.
Could not agree with you more. I've been in the market since 1982 and in the 33 years since, I've only actually sold stocks once. That was a few years ago when I sold some Apple stock to fix up my house - and I'm kicking myself for even doing that. Should have done that with an equity line. Other than that, I've socked 15-20% of my income into 401(k) and stocks over three decades and forgot about it. I encourage having that money transfer out of your check through direct deposit, that way you never really have it in hand and so you don't miss it as much (kind of like having taxes taken out).
The main advantage of long-term investing is "dollar-cost" averaging. When you are long-term investing, you actually want the market to go up and down. During down times, you are purchasing stocks at a lower rate and then riding them back up again. Because you are never selling, you never actually realize any losses when the market does have a downturn.
During this entire time, I've had to deal with "Chicken Littles" telling me I was a fool to be in the market and that it was about to crash and leave me penniless and that I would then get my "comeuppance." It seems that many people out there are very concerned about me getting a "comeuppance." I attribute that to envy.
Anyway, it's never too late to start saving for retirement. The magic number is your age times your salary divided by 10. This is what your net worth (not including home equity) should be at a given age.
So if you are 50 years old making $200,000 a year, you should have a net worth of $1,000,000.
If you are 30 years old and making $60,000 a year, you should plan to have a net worth of $180,000 by that time.
Now some people like to include home equity in their net worth. I was never a fan of that because you are always going to need a place to live. For example, I have have $800,000 equity in my home but if I sell it, I'll be homeless and will have to buy another house. Now if I then buy a $400,000 house cash, then I can add that other $400,000 to my net worth.
Opps typo. Should be ““Lie with many things”
When we were young, someone told us that if we ever got a raise we should just save it, and live as we always have done. Years later, we find we just don’t need everything our peers find “necessary” and it’s not like we miss that lifestyle because we never had it. Those kind of hints help, because if the money stays out of your checkbook, you do tend to live within your means. You can instruct your employer to direct deposit the sum right into savings.
other stocks rather than your own company
I don’t have that option in 401k. I was a bit uncomfortable about doing so, but the company is pretty solid - large non-union trucking company.
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