Tips for Retirement Savings Procrastinators

Life is expensive; according to data from the U.S. Bureau of Labor Statistics, the average consumer household spends approximately $66,928 on an annual basis. Considering the average household income after taxes in that same year was $78,743, you can see why many Americans under-fund their retirement savings. Consequently, as reported in 2021 by the Insured Retirement Institute, workers between the ages of 40 and 73 have insufficient retirement savings to cover their income needs.

While saving for retirement is sometimes stressful, the good news is that it’s never too late to save. With some mental discipline, you too can build a retirement fund that keeps you content. Here are some tips to do so.

Identify how much money you’ll need in retirement

As a solid first step, think about where you want to live during retirement—as housing expenses will likely eat up the largest chunk of your budget (on average, these costs represent over 36% of annual household expenditures for retirees).

Once you make a decision in this respect, consider how you’ll allocate all of your newfound free time. Regardless of how this takes shape, the goal here is to find new, interesting activities to fill your time while putting your mind and body to work. You’ll want to zero in on undertakings that inspire you and give you a new sense of purpose.

Admittedly, developing a vision for retirement takes some effort and becomes even more challenging if your ideals differ from those of your partner. If you aren’t there yet, you can at least review the latest Consumer Expenditure Survey—published by the U.S. Bureau of Labor Statistics—as a rough baseline regarding how much money you’ll need to retire. The data reveals that annual spending by retiree households—defined as those led by someone age 65 or older—averages $52,141 (or $4,345 a month). Just keep in mind that these numbers will increase as time goes on. For example, in 2016, average retiree household spending was $45,756 (or roughly $3,800 a month): $6,385 less than current figures. Therefore, the further away you are from retirement, the higher the threshold when it comes to annual spending.

Slash expenses

Once you have an idea of how much extra you’ll need to save, one of the first things you can do is cut expenses—starting with daily living expenses.

Cut daily living expenses
You can take many different approaches here: including utilizing tools such as Mint.com, seeking a breakdown of spending categories from your credit card company, or simply pulling your bank and credit card statements. Regardless of your approach, retrieving 12 months of data will ensure you don’t miss any expenses paid on a quarterly or annual basis. You should also be very specific and include co-pays, insurance premiums, and clothes—breaking down all those Amazon purchases into buckets. The objective here is to fully understand how every penny is spent and attempt to reduce waste, accordingly.

Consider downsizing into a smaller home
Downsizing your home is an obvious solution for reducing expenses and saving more during retirement. Yet, it’s important to know that not all downsizing is good downsizing. You’ll first want to dive into the research to determine whether the cost to do so is worth the trouble. Chances are, it is.

To downsize, you’ll first need to obtain a true valuation of your property with the help of a real estate agent or experienced independent appraiser who can give you a more accurate estimate than what is perhaps available online. Once you know the value of your home, you can then explore smaller living options for an amount within your budget that allows you to save.

Reduce debt
Debt, for many retirees, is a constant source of stress. Likewise, carrying too much debt into your retirement can place additional strain on your fixed income. If you fail to successfully manage your debt before you retire, you might need to cut back and adjust the budget you’ve become accustomed to over the years.

One of the smartest moves you can make debt-wise is to pay off your mortgage. Given that housing is the biggest monthly expense retirees incur, you could be in for some big savings if you pay off this debt in a speedy manner. A recent report from Harvard’s Joint Center for Housing Studies showed that nearly half of homeowners ages 65-79 are still paying off a mortgage. The more quickly you can unload this debt, the faster you can allocate that money to other important retirement expenses.

Continue working

You already know that the more you work, the more money you can stash away for retirement. What you may not realize is that if you continue to work and delay claiming Social Security benefits—which you can collect as early as age 62—you can enjoy an additional boost to your retirement savings. Why? Because you’ll receive a higher benefit (about 7%) for every year you wait until reaching full retirement age (the age when you are first entitled to a full Social Security benefit, which is currently 67 if you were born in or after 1960).

Seek out income-boosting opportunities

While this option may not sound appealing, know that a side gig is often beneficial in many ways. Financially speaking, just making and saving an extra $500 a month with a 5% return rate could mean over $77,000 in savings within 10 years. Additionally, if you truly enjoy your side hustle, it can help fill your free time and give you a sense of purpose during your later years—factors imperative to a happy retirement.

Take advantage of IRS rules

If you are over the age of 50, you have the option to capitalize on catch-up contributions. This IRS provision allows you to make additional contributions above standard limits to your 401(k), IRA, or other retirement accounts. As of 2023, you can contribute an additional $7,500 per year for your 401(k) and $1,000 for your IRA: or a total of $8,500 if you have both accounts.

Consider a health savings account (HSA)

An HSA is a type of savings account you can use to pay for qualified out-of-pocket healthcare expenses, including deductibles and copays. These accounts are specifically designed to help people with high-deductible health insurance plans (HDHP) pay for such expenses. One of the most appealing features is that—unlike a flexible spending account—any money left in your HSA account at the end of each year simply rolls over, providing a great way to save for future healthcare costs.

In sum: how to compensate for delayed retirement savings

If you haven’t saved enough for retirement, you aren’t alone: Federal Reserve data published in 2021 showed that, on average, Americans (even those approaching retirement) don’t have enough socked away for their golden years. Hiring a financial advisor can help you work towards getting back on track as you look to enjoy a potentially fulfilling retirement.

———

Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.

Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business. All examples are hypothetical and are not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.