Uh oh. The years are slipping by and it suddenly dawns on you that, someday, you will actually have to retire. What if you aren’t saving enough? Nothing frightens pre-retirees and retirees people more than the fear that they’ll run out of money in old age. And, indeed, some of them do.
When you’re young, those fears are far away. Still, you know in your heart that the money you need to keep you safe — now and in the future – won’t magically fall from the sky. If you’re not saving money (and investing it well), it’s time to give yourself a financial do-over. It’s never too early or too late to catch up.
If you work for a company that offers a 401(k), you’re already 10 steps ahead. You can save from every paycheck, automatically, and invest it in whatever mutual funds your plan provides. Automatic savings are the only patented, guaranteed way of building a nest egg. Most of the people who retire well have had access to 401(k)s or similar plans.
If you’re self-employed or work in the gig economy, it’s much harder to put money aside. That’s because you have no one to help you do it. You have to force yourself to save something from every paycheck no matter what bills are falling due. There are several plans for the self-employed – Individual Retirement Accounts, SEP-IRAs, and solo 401(k)s. If possible, set up automatic payments into your plan from your bank account – just as if an employer were doing for it. The do-it-yourself (but less reliable) alternative is to save a fixed percentage of every free-lance check you get.
Here’s how the do-over works at different ages:
In Your 20s
Start paying attention to whatever savings plans are available. If you’re lucky your employer will put you into a 401(k) automatically, as soon as you’re hired. If not, it’s up to you to join the plan yourself. Don’t skip it! These are the years when people acquire the habit of thrift. Most people your age start low — say, saving 5 percent of each paycheck. If you haven’t increased the amount, start doing it every year. If you have no 401(k), learn about the plan available to you.
Most retirement savings plans are tax-deferred, but consider the plans called labeled “Roth.” There’s no tax deduction for your contribution but Roths can accumulate tax-free for the rest of your life.
In Your 30s
If you have no retirement plan, it’s time. You might think you can’t afford it because you’re living paycheck to paycheck. But you know what will happen if you start putting, say, 7 percent of your earnings away? Nothing will happen! Your life won’t change. You’ll keep on living paycheck to paycheck but now you’ll be saving money on the side. You’ll adjust your spending to the money you have in your checking account without even knowing how you did it. Believe me, I’ve lived this myself and I know it works. Aim to save at least 10 percent of your income and preferably more. If you change jobs, don’t cash out your savings even if the amount is small. Roll the money into another retirement plan.
In Your 20s And 30s
Put most of your savings into well-diversified stock-owning mutual funds. The stock market falls occasionally, but ignore it. The history of the market, as a whole, shows that it always recovers and goes to higher levels.
In Your 40s
Step up your savings and stick with stock-owning funds. If you suffer a setback – you lose your job or get divorced – don’t cash out your retirement account. Instead, downsize your lifestyle right away. You can always expand again once you get back on your feet. Maybe you’ll have to nibble at your savings at first, to help pay your bills. But take as little as possible every month. Once you’ve stabilized your life, start building those savings up again.
In Your 50s
Squeeze your paycheck like a sponge and plan to work as long as you can. Unless you’ve saved a ton of money, early retirement is out.
In Your 60s-Plus
Delay retirement. Put off taking Social Security. The longer you wait for your government benefit, the higher your lifetime income will be. If you’re married and die first, delaying Social Security also increases the amount of income you’ll leave for your spouse. Then right-size your budget to be sure that money you’ve saved will last for life.
Jane Bryant Quinn is a leading commentator on personal finance. She is author of the bestselling Making the Most of Your Money NOW, a complete guide to personal finance. Quinn has written for Newsweek, The Washington Post, Bloomberg.com, Woman’s Day, and Good Housekeeping. An Emmy Award winner, Quinn has appeared on PBS and CBS News. Her personal finance column currently appears in the AARP Bulletin. She lives in New York City and blogs at JaneBryantQuinn.com.
The views, opinions and positions expressed within this guest post are those of the authors alone and do not represent those of CBS Small Business Pulse or the CBS Corporation. The accuracy, completeness and validity of any statements made within this article are verified solely by the authors.