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You will often hear or read that Americans are in dire need of retirement savings, and while some of these data may be incomplete or exaggerated, it is safe to say that a large number of workers do not take steps to build a nest egg. Earlier this year, the Center for Financial Services Innovation found that 42% of US adults had no savings for retirement.
Why is it problematic? Without savings, you risk fighting financially at a time when you deserve to live a dignified life. Social security, for example, now pays $ 17,532 a year to the average beneficiary, which is several notches above the poverty line, but it is barely profitable.
Of course, some workers can expect to earn pension income or perhaps legacy funds to pay bills during their golden years. But if you do not belong to it, you will need savings in addition to Social Security to have a comfortable lifestyle.
SOURCE OF IMAGE: GETTY IMAGES.
Some financial experts will now tell you that if you do not have the habit of saving for retirement and that your budget does not provide money for this purpose, then you will have to drastically change your current lifestyle to fund your nest. Egg. In fact, many people will advise you to minimize as much luxury as possible in order to increase your savings.
In theory, it's a decent board. In practice, it is almost impossible to follow. And that is why you'd better take an interim approach to achieve long-term savings.
You must save, but you must also live
I have myself written articles in which I encourage readers to cut down on their luxury spending in order to meet urgent financial goals, such as creating an emergency or savings plan. the reduction of income for retirement. But there is a difference between eliminating some indulgences and completely suppressing any semblance of gratification in life.
Depriving yourself of every luxury you enjoy is not a way to work, and if you go down that road to focus on savings, you'll be able to give up early when you realize it's too much difficult. A better approach is therefore to be reasonable. If you're not saving enough money (or money) for your retirement, look at your expenses, identify those that are not essential – think about restaurant meals, store-bought coffee, cable, services streaming, snowshoeing, movie tickets, etc. shows – and choose a few that you are willing to separate or reduce.
For example, if you currently exhaust all your salary and you usually spend $ 300 a month for catering, $ 150 a month for cable and $ 100 a month for a fitness center with sauna, you can cancel your subscription at the fitness center and downgrading to a cable. package that costs $ 40 cheaper, but keep going to the restaurant if that's what you prefer to do. Similarly, you can decide to abandon a car without which you can technically live and handle the inconvenience of taking the bus, while maintaining your current spending level in other categories with leeway.
The goal is to make reasonable and sustainable lifestyle choices that save you money when you need it, but also to enjoy your daily existence. And the good news? You do not need to spend a fortune every month to build a solid nest egg. Of course, the more you save, the better, but setting aside even a few hundred dollars a month will go a long way if you start early enough and give your invested savings enough time to grow.
See the chart below, which tells you what your nest egg can mean depending on when you start saving modestly:
|
If you start saving $ 300 a month at age: |
Here's what you'll get at age 67 (assuming an average annual return of 7%): |
|---|---|
|
27 |
$ 719,000 |
|
32 |
$ 498,000 |
|
37 |
$ 340,000 |
|
42 |
$ 228,000 |
|
47 |
$ 148,000 |
Data source: AUTHOR.
The more time you spend looking for savings, the better, especially if you are not going to get as close to a 401 (k) or even one as you can. IRA. With the first, you can save up to $ 19,000 a year if you are under 50, and with the second, $ 6,000. At the same time, reduce some Luxury could save $ 300 a month. Once invested, this money can become a much larger sum over several decades. And if you are wondering about the 7% yield, it is actually a few points lower than the stock market average, which means that it's reasonable to work with a long investment window.
The less you spend, the more you can save – it's pretty obvious. But, just as it is advisable to spend in moderation, it is also reasonable to save in moderation when your income is limited and you can not bear the thought of removing every luxury under the sun. So do not do that. Instead, do some compromise, but let yourself also live a little on the road to retirement. You deserve it.
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