One of the things that I would do if I were emperor is to make people save at least something for retirement. In fact, there are some states right now that are actually making it mandatory for some small businesses to contribute a small % of an employees income to some retirement plan. While this is for a future post I say bravo states! It is about time. The truth is Americans don’t do a very good job of saving their money whether that be for retirement or otherwise.
In fact, some would argue there is retirement crisis in America. People who are reaching retirement age are woefully unprepared, young people believe the stock market is a casino or have so many student loans they can’t save that much. And then there is the sandwich, Generation Xers, who have both problems.
Now we can blame all kinds of people for this. We can blame the government, we can blame our culture, we can blame a whole host of folks. And unfortunately there are some people who can’t really afford to retire because of poverty. This message and post is directed at those who have retirement plans available to them at work or can open some kind of IRA: It is high time we start saving at least 15% of your income into some kind of retirement savings.
You might be screaming at the computer screen right now: Jason I can’t save 15% I don’t have the money. My message to you would be you cannot afford not to save, save early, and save often.
Make Your Savings Automatic
One of the things you can do to begin the habit of saving is to just make it automatic. Sign up for your 401k plan or whatever retirement plan available and have 15% of your paycheck put into your plan. If you can’t afford 15% right away (and I would try it first then adjust later) then start with 10% and every time you get a raise then increase your savings by 1%. Every time I get a raise I take at least 25% of that raise and I automatically increase my retirement contributions.
It is automatic every two weeks and I really don’t miss the money because my housing expenses are fixed and I learn to live on a little less.
If you don’t have a retirement plan then do the same thing for sometime of IRA. You can easily open an IRA at any major bank or brokerage firm or you can do it online. Every paycheck have x amount of dollars automatically deducted from your check before you can spend it.
Cut Spending Somewhere Else
You might be thinking that there is still no way that you can put 15% of your income into retirement savings because you need that money for bills or other debts. I fully admit that I want people to be debt free as soon as possible. If Dave Ramsey were writing this post he would say don’t even invest until you have ALL of your debt paid off (except your mortgage). Not bad advice, but I don’t necessarily agree with everything Dave has to say (but I do admit I think about his advice a lot).
If you do have all of your money going to bills then you probably want to check your bills and see where you can cut some of your spending. My next financial challenge is called the 1% challenge. In other words, I am going to track my spending and cut 1% out of my budget. If my budget is $2000 that is $20. Maybe that means I don’t eat out or whatever. But I am sure that I can cut 1% of my budget to meet that goal.
Take that 1% and put it into a retirement vehicle. Even $20 is better than nothing.
But maybe you also need to think about cutting a bit deeper. For example, last year Americans bought over 16 million new cars. The average car payment per month is over $400. Sometimes people are just buying cars or leasing them because they want a new car.
Instead, why not buy a used car (another future post) that is a couple of years or even older for a reasonable price. Pay off that car as soon as possible and then take that $471 and put it in a retirement vehicle (e.g. an IRA or divert it to your 401k). If you drive the car you bought for over a decade and most cars average at least 11-15 years on the road. But if you took that $471 and invested it over a 30 year period. You would have based upon an 8% return almost $700,000. If you averaged 12% you would have over $1.5 MILLION.
Just by contributing that car payment you would be a millionaire if the stock market performs on average for the next 30 years (which I think it will). For most people $471 is less than 15% of their income. You might even wind up with more money than that. Why on earth would you give up that kind of money so you can buy or even lease a new car? Or go out to dinner all the time or whatever it maybe.
The Bottom Line
We don’t do enough to think about our future retirement. I was the same way until my early 30s. And I still kick myself for the stupid mistakes I made. If I had been more disciplined and not gone out to eat or done whatever, when I didn’t need too I wouldn’t be in the financial mess I am in.
Most people will want to retire someday. You don’t need to be a millionaire to retire, but you do need to save at some point. I would love it if people would save 50% of their incomes, but that isn’t realistic for many people. So 15% is a good starting point. It is never too late too start. The point is that you begin now.