According to CNBC contributor Ester Bloom, who pored through this Economic Policy Institute report so we all don’t have to, nearly half of all American families have saved nothing — $0 — for retirement. The “vast majority” of Americans have less than $1,000 in retirement savings, less than Colorado homeowners’ average monthly mortgage payment.
To be sure, plenty of Americans are in decent shape for retirement. The median retirement savings balance for all U.S. families is $5,000, and the median for families in better financial shape (those with “some savings”) is $60,000.
Still, those figures aren’t nearly enough to maintain your lifestyle in retirement, even if you’re willing to cut spending here and there. Americans are living longer than ever, after all, and basic necessities like food and housing aren’t getting any cheaper.
No matter how far off your golden years is, it’s never too early to begin planning for the future. Here’s what you can do to get ready to hang up your hat for good.
1. Create a Monthly Household Budget
First, create a workable, realistic monthly household budget. Mint has a great step-by-step primer on hashing out your spending priorities and ensuring that you have enough in the bank each month to achieve them. Use it as a guide, but remember that your financial situation is very different from your neighbors. You’ll have to make adjustments and compromises.
2. Learn the Basics of Investing and Money Management
Next, boost your financial IQ. You don’t have to become a personal finance expert or begin studying for your broker’s license, but you should aim to improve your working knowledge of basic financial concepts. Look for personal finance videos on the topics you want (or need) to learn more about, such as budgeting and managing investments.
3. Set Aside an Emergency Fund with Several Months’ Income
If you haven’t already done so, open an FDIC-insured savings account and begin making regular deposits into it. Your first goal should be to build an emergency fund — a buffer against major, unexpected expenses or changes to your employment status. Most personal finances experts recommend socking away at least three months’ income in this account. Some advise closer to six months’ income.
4. Open an Individual Retirement Account
Open a tax-advantaged individual retirement account (IRA). If you’re among the millions of U.S. employees who lack workplace retirement plan options, this could be your primary tax-advantaged retirement vehicle. Check with the IRS for guidance about contribution and distribution limits, among other important details.
5. Learn About Your Employer-Sponsored Retirement Plan Options
If you do have access to a workplace retirement plan, but haven’t yet enrolled, ask your human resources contact for plan information. Review it carefully, and don’t be afraid to ask for guidance — this stuff is confusing for first-timers.
6. Choose a Plan and Start Making Regular Contributions from Your Paycheck
Once you’ve reviewed your options, choose the plan that best fits your needs and set up automatic, before-tax payroll contributions. Use the household budget you’ve already drawn up to determine how much you can afford to put away. Even 3% or 5% of your before-tax pay can make a big difference.
7. Trim Superfluous Household and Personal Expenses
Finally, look for superfluous household and personal expenses to trip. Your personal priorities will dictate what you choose to cut — for instance, if your annual family vacation is non-negotiable, perhaps you can cut out your cable subscription instead. As long as you create some sorely needed budgetary breathing room and make it easier to save for the long term, you’ve succeeded.
It’s Not as Far Away as You Think
For children, every day seems like a self-contained eternity, and every morning feels like a fresh start.
When’s the last time you felt that way? It’s more likely that your day's race by, each evening blurring into the morning, leaving precious little time to stand up, look around, and take stock of your life.
Even if you’ve got years left to work and retirement remains the farthest thought from your mind, you’d do well not to discount it. It’s coming, sure as day follows night.