Yahoo Finance Investors now say they will need at least $3 million to retire — do you agree? Use these 3 simple tips to supercharge your savings if you've fallen way behind
As Americans grapple with higher inflation and interest rates, some are projecting soaring numbers (and fears to go with them) onto their retirement costs — to the tune of at least $3 million, according to one study.
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The 553-person study by Bloomberg identified that number as the key to a secure retirement. Yet that would mean putting aside $75,000 per year for a span of 40 years.
But for every study there’s another study and last year, Northwestern Mutual found Americans believed they would need at least $1.25 million to retire. Less than half of the Bloomberg study, but still quite high. In that case, it would still mean putting aside $31,250 each year.
No matter which number sounds more believable, many Americans won’t have nearly enough to join the seven-digit retirees club. If this sounds like you, there’s still hope you can catch up using these three simple ways to supercharge your retirement savings.
Avoid lifestyle inflation
While it can be quite tempting, spending more every time you get a raise can run counter to building future savings. Clearly, living below your means can help you save far more money for retirement in the long run. It’s as simple as the mantra “spend less than you make.”
That’s not to say you should become deprivational. Rather, strike a balance between your college “ramen noodle days” and conspicuous consumption that chases after bigger cars, bigger boats … and in the end, bigger bills.
A good rule of thumb is to look at your credit card balances. Ideally, these should be kept as close to zero as possible; if your balances are creeping up, ask yourself how hard a time you have keeping up.
Use the 50/30/20 Rule
The 50/30/20 rule is a guideline that allocates 50% of your income to essential items, 30% to items you want, and the remaining 20% for savings and debt repayments. (In case you’re curious, the rule was first explained in the 2005 book “All Your Worth: The Ultimate Lifetime Money Plan,” written by current U.S. Senator Elizabeth Warren and her daughter, Amelia Warren Tyagi.)
Read more: 'Hold onto your money': Jeff Bezos says you might want to rethink buying a 'new automobile, refrigerator, or whatever' — here are 3 better recession-proof buys
The key is to treat this as a rule. What’s more, it’s a good idea when making a budget to filter money through separate accounts for essentials, items you want, and savings/debt. Not only will this make it easier to track your money; you’ll also create a structure that easily accommodates your long-term goals.
Boost your retirement contributions
Even a small increase in your retirement contributions can lead to a significant impact on your overall savings over time. A study by Vanguard found those who increased their retirement contributions by just 1% each year could increase their savings rate, eventually leading to the goal of between 12% and 15% annually.
Increasing the length of your contributions, as well as the amount, can therefore supercharge your retirement savings to help you catch up.
And don’t forget (as many full-time workers do, sadly) to take advantage of an employee match, which commonly doubles your 401(k) contributions up to 6% of your earnings. Assuming a salary of $40,000, a 30 year old who leverages 6% matches through age 65 will realize an extra $345,000.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
