Many think a comfortable retirement is only available to high earners. Inflation concerns, economic turbulence, lack of retirement plan access, and debt can make it hard to save.
However, each generation is more on track for retirement than they may think. For example, millennials are equal to Generation X in many metrics, like earnings and home ownership.
The big issue for most generations beyond the Baby Boomers is student debt. The average person has around $37,338 in student debt.
The silver lining is that, typically, over time, income rises and debt decreases, which puts retirement more within reach.
Additionally, there are plenty of ways to increase your chances of achieving a successful retirement. This article will explore some tips on reaching retirement despite today’s additional challenges.
Table of Contents
1. Start ASAP
The earlier you begin saving, the better, thanks to compounding. Compounding is when your money works for you, earning more money.
For example, when you earn interest in a bank account, that interest adds to your bank balance. Your next interest payment is calculated based on that new amount.
Or, when you invest in stocks, they can potentially grow. The earlier you start investing, the longer you have to potentially enjoy growth.
Even small contributions now can potentially result in a larger amount of retirement assets than if you wait for a higher income and lower debts.
Regardless, check on your progress regularly with a retirement calculator and adjust as needed.
2. Make a Budget For Today and Tomorrow
A budget helps you track your spending to ensure you’re not spending more than you make. You need one for today and retirement.
Making a budget for your current situation helps you see how much you can save regularly for retirement. Plus, you can cut costs to free up money for savings and track your progress.
You’ll also want to sketch out a retirement budget.
Your income will be based on your retirement assets and other income sources. For expenses, you’ll have to consider your desired lifestyle.
Your retirement budget won’t be exact — it may change over time. However, creating it early helps you estimate your retirement savings goals.
3. Use Tax-Advantaged Accounts As Much As Possible
Retirement-focused accounts offer tax benefits, such as deductions or tax-free retirement income.
You may have access to a 401(k) or similar plan if you’re employed. Contributions come out of your paycheck, reducing your taxable income. Try to hit your matching bonus if offered — this is essentially “free money.”
If you hit your matching bonus or don’t have access to a workplace plan, investigate Individual Retirement Accounts:
- Traditional IRAs: Contributions are pre-tax. Growth is tax-deferred, but you are taxed at your ordinary rate on retirement withdrawals.
- Roth IRA: Contributions are after taxes. However, growth is tax-deferred, and qualifying retirement withdrawals are tax-free.
Once you reach the contribution limits, you may consider going back to your 401(k) if you have one.
4. Whittle Down Debt
Debt interest is almost like a “negative rate of return.” Therefore, reducing your debt is an equally valid way of progressing toward retirement.
Start with high-interest consumer debt, like credit cards. Refinance and consolidate with a loan or balance transfer to lower your interest rate and reduce debt payments.
After that, make a plan to pay down this debt. Balance this plan against your need to save for retirement.
Each time you pay off a debt, roll the extra monthly cash into the next debt to accelerate your progress.
Retirement is Still Accessible
A comfortable retirement is within reach for most people. Diligence is required.
Make a budget for today and retirement to ensure you’re saving enough for your retirement goals. Contribute to tax-advantaged accounts to save on your tax bill and put more toward retirement. As you do so, chip away at your debt to free up more income for retirement savings.
Start as soon as you can. The best time to start was yesterday, but the second-best time to start is right now. The sooner you start saving, the more likely you’ll be able to retire comfortably.