Retirement is getting more expensive, so it’s best to start saving as soon as possible. Many workers know this, yet a third of Americans aren’t currently putting money aside for their future, according to a recent Anytime Estimate survey.
Here are three of the most common reasons participants gave for not saving for retirement right now, along with some strategies you can use to overcome them.
1. Not making enough money
Lack of funds was the main reason most people said they couldn’t save for Retirement. About 37% of survey participants said they didn’t make enough money, while 26% said they didn’t have a job. This is understandably a big hurdle, but there may be ways around the situation.
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First, you will need some kind of job. If you don’t already have one, look for employers who are hiring. Whenever possible, see if you can find one that offers retirement benefits, like a 401(k) with an equivalent contribution. If a job doesn’t offer a retirement account, you may need to open one. GONNA on your own to save for retirement.
If you have a job but need all of your income to cover essential bills, it might be time to think about a career change. You could also start a side hustle. You can decide what you do and how much you work. But some side jobs have upfront or ongoing costs, and you need to decide if it’s worth it to you.
2. Being too young
About one in five workers surveyed said they felt they were too young to start saving for retirement. This is a common and dangerous mistake. Retirement may be decades away for you, but it will creep up on you faster than you expect. And the longer you wait, the more difficult your task becomes.
Let’s say your goal is to save $1 million by the time you’re 65, and you expect to earn an average annual rate of return of 7%. If you start saving at 25, you only need to save about $403 per month. If you fall behind a year, you’ll need to save an additional $30 a month to reach your goal. And if you wait until you’re 35 to start saving, you’ll need to save $851 per month. Over the course of your working life, that 10-year savings delay will cost you nearly $113,000.
This is because the longer you wait, the less time your investments have to grow before you need to withdraw the funds. As a result, you will need to contribute more of your own money to reach your goal. But when you start early, you’ll have more investment earnings to help you. So if you can afford to save for retirement, don’t let age stop you. Start saving right away.
3. Prioritize other investments
About a fifth of the survey participants said they were not retirement savings because they were prioritizing other investments. The survey did not clarify what these other investments were. Some people may choose to save in a taxable brokerage account instead of a retirement account, so they can access their funds at any age. Generally, you can’t withdraw money from retirement accounts without penalty until you’re 59½.
There’s nothing wrong with investing outside of a retirement account, but if you don’t plan to use the money for the foreseeable future, a retirement account is probably a better option. They offer unique tax advantages that taxable brokerage accounts do not.
Tax-deferred retirement accounts, such as 401(k)s and traditional IRAs, give you a tax break this year. If you earn $40,000 this year and put $4,000 into a traditional IRA, the government only taxes the remaining $36,000. But you will pay taxes on your withdrawals later.
Roth accounts give you tax relief in retirement. You pay taxes on your contributions in the year you make them, but then you don’t have to pay taxes on your withdrawals in retirement. This is generally the best path to take if you think you will be in the same or higher tax bracket once you retire.
No one will force you to save for retirement if you choose not to. But it’s usually best to make it a habit if you can. If you put off saving for too long or only contribute money infrequently, you risk retiring without enough.
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