If you feel like you’re playing catch-up when it comes to saving and investing for retirement, rest assured you’re in good company. The 2024 Retirement Confidence Survey reveals that a staggering 47% of workers have saved less than $100,000, with 29% having less than $25,000 in their retirement accounts. That’s quite concerning!
Even if your savings total around $500,000, it might not be enough. If you follow the 4% rule, withdrawing 4% of your savings in the initial year of retirement and adjusting for inflation thereafter, you’d have just $20,000 for that first year. Add that to the average annual Social Security benefit, which is about $23,750, and you’re looking at a total of $43,750. Many retirees find they need or want more than that to maintain their lifestyle. So, let’s explore some strategies to boost your financial outlook.
1. Know the Possibilities
Get inspired by potential growth. Take a look at this table:
| Timeframe | $7,500 Invested Annually | $15,000 Invested Annually |
|---|---|---|
| 5 years | $47,519 | $95,039 |
| 10 years | $117,341 | $234,682 |
| 15 years | $219,932 | $439,864 |
| 20 years | $370,672 | $741,344 |
| 25 years | $592,158 | $1,184,316 |
| 30 years | $917,594 | $1,835,188 |
| 35 years | $1,395,766 | $2,791,532 |
| 40 years | $2,098,358 | $4,196,716 |
The figures speak volumes—substantial sums can accumulate over time. Investing more than the $7,500 or $15,000 mentioned can lead to even greater returns. Patience and time are key. I’ve used a growth rate of 8% for these calculations; while the S&P 500 has historically averaged close to 10% annually (not accounting for inflation), there’s no guarantee.
2. Develop a Household Budget
To save and invest meaningful amounts, cutting back on spending is often necessary. Start by drafting a household budget. Track every penny for a month or two to see where your money goes; you’ll likely identify areas to cut back. Perhaps you’re shelling out for unused memberships or overly expensive services like cable TV. With a clear picture of your spending, you can create a budget that aligns your financial goals with your actual expenditures, avoiding overspending and debt.
3. Find Ways to Earn More
After trimming expenses, consider boosting your income. One straightforward approach is asking for a raise. Don’t assume it’s out of reach; raises are more common than you might think, especially if you’ve earned it. Depending on how far you are from retirement, pursuing a professional certification can qualify you for a higher-paying role. Another option is taking on side gigs. Raking in an extra $200 each week translates to over $10,000 a year that you can set aside for the future.
4. Invest Long-Term Dollars in Stocks
If you’re a good five to ten years away from retirement, stocks are a wise choice for your investment dollars—again, money you won’t need to touch soon. Research led by Jeremy Siegel, a Wharton professor, shows that stocks delivered an average annual return of 11.3% from 1946 to 2021, outpacing long-term government bonds’ 5.8% (disregarding inflation). This underscores stocks’ dominance over extended periods.
5. Opt for Index Funds
Once you decide to invest in stocks, consider limiting your risk by choosing low-fee, broad-market index funds, such as an S&P 500 tracker. A popular choice is the Vanguard S&P 500 ETF (VOO), lauded for its minimal fees. Index funds aren’t a consolation prize, either. S&P Dow Jones Indices notes that over the past 15 years, 89.5% of large-cap mutual funds couldn’t keep up with the S&P 500, along with 84.3% over the past decade.
6. Weigh Delaying Retirement
One game-changing strategy, if you’re behind on savings, is to delay retirement for a few extra years. This gives you additional time to save and grow your investments. Plus, it shortens the duration your funds need to cover, and might keep you on an employer’s health plan longer, saving even more.
7. Have a Comprehensive Retirement Plan
Ultimately, these methods are most effective when part of a comprehensive retirement plan. Determine how much you’ll need in retirement and plot out diverse income streams—dividends, annuities, withdrawals from retirement accounts, etc. Plan your withdrawal strategy wisely to ensure your funds last. Don’t leave your golden years up to chance.
