We have a retirement savings crisis in this country. In fact, “about 36% of workers have less than $1,000 in savings and investments that could be used for retirement, not counting their primary residence or defined benefits plans such as traditional pensions, and 60% of workers have less than $25,000” (USA Today).
Those numbers might be reasonable if we were talking about workers in their 20s, but this survey covers a wide range of workers, some very close to retirement.
Of course, saving for retirement can be daunting, especially when experts are encouraging those over 40 “to try to save 20% of their income” (USA Today). If you don't have 20% of your income to spare, you'll likely think, like most people, “Why bother?”
Table of Contents
Start By Taking Advantage Of An Employer Match
However, that's the trap that most people fall into when it comes to retirement savings. If they can't save what they feel is a good amount, they figure, why try?
For years, that's what my husband and I thought. The only reason why our retirement savings is in fairly good shape is because we've benefited from extremely generous employer matches. I worked full-time for 10 years while my husband got his Ph.D. My employer automatically put 8% of my salary in retirement and matched my 8%, so I was able to have 16% of my salary saved every year. When I quit the job, I rolled my retirement savings into a traditional IRA.
My husband just started a new job where 7% is automatically deducted for retirement, and his employer matches it with another 7%. Even better, he started the job immediately vested.
If you're overwhelmed and don't know where to start with retirement savings, start by taking advantage of an employer match, if it's offered to you. Make it easy on yourself by signing up for an automatic deposit. That way you don't have to take the money out yourself. It's automatically done. After awhile, you won't even miss the money, and your retirement savings will grow.
Start Saving A Small Amount Independently
My husband and I have a very tight budget, but we've decided that we will find a way to fund our Roth IRAs even though we know there is no way we can come close to hitting the yearly contribution limit.
We've started small. We each deposit $20 a month in our Roth IRAs. That is just $40 a month, jointly. Still, putting that money aside means we have to scrimp a bit more when buying our monthly groceries. But it's worthwhile.
At $20 a month, this year we'll each save just $240 in our Roth IRAs. But it's a start. It's a start I wish I would have taken at 29 when I finished grad school and got my first legitimate job. But there's no use beating myself up about the fact that I didn't save earlier. The point is that I'm starting.
Besides, my husband and I will likely see yearly pay increases. When we do, we plan to also increase our Roth IRA contributions.
Another option we're considering once we've bulked up our emergency fund is to save our windfalls. If we get a tax return, we could put that in our Roth IRA. If I get an extra freelance job, that money can go in our retirement fund. You could do the same. You'll likely be amazed at how quickly the windfalls add up and make a significant difference in your retirement savings.
Too often people don't save for retirement because they feel they don't have enough to make a difference. However, if you start with a small, manageable amount and gradually increase that amount as you're able, you'll be amazed how quickly the money adds up.
There's never a time that's too late or a dollar amount that's too small to save for retirement.
What's your advice for saving for retirement when money is tight?