Retirement is supposed to be a time to look back on a long career, celebrate accomplishments, and look forward to the freedom of the future. There are plenty of cultural tropes about retirement: Moving to a warmer climate, playing golf and doting on grandchildren, to name a few.
But retirement can just as easily be a source of stress as joy—namely for people lacking the capital to cover living expenses after their primary source of income has disappeared. It’s crucial to stockpile a significant nest egg when you’re bringing in steady income so you can survive comfortably throughout your golden years.
Women, in particular, should take heed. A recent study found an alarming discrepancy between the amount men and women are saving. According to the Student Loan Hero study, women have an average of $45,614 stashed away for retirement; men have $90,189 on average. This means men are saving nearly twice as much for retirement—while, in reality, everyone needs to maximize their retirement savings.
There are numerous potential reasons for this significant difference, including the wage gap and the higher likelihood for women to serve as caregivers at some point during their career.
It’s highly important for everyone to beef up their retirement savings, starting as early as possible. Keep reading to learn more about how to do so and why you should.
How Much Should You Save for Retirement?
There’s no hard-and-fast rule regarding retirement savings. Most experts recommend saving at least 10 percent of your income, though 15 or 20 percent will set you up better in the long run. A good rule of thumb to remember is that $1 million will last a U.S. retiree approximately 20 years. Using this guideline, you can figure out when you need to start saving and what percentage of your income you need to put away to exceed this milestone.
Eliminating Hurdles to Retirement Savings
To optimize your retirement strategy, you’ll need to identify what’s currently holding you back from hitting your savings goals—or increasing them, if you’re able. Debt is a common inhibitor to long-term savings because people find themselves caught in a cycle of trying to meet minimum balances and paying interest instead of being able to devote money to their future. Proactively tackling debt now can free you up to focus on longer-term goals, like retirement. Here are a few strategies to consider:
- Debt consolidation: Taking out one loan with a lower interest rate to repay debts, then focusing on paying back this single loan in regular installments.
- Debt settlement: Debt settlement programs including Freedom Debt Relief can help reduce the amount owed by negotiating with creditors after clients save money in a dedicated account for 24 to 48 months.
- Do-it-yourself debt elimination: Streamlining your budget can help you come up with more money to devote to paying off your debts more aggressively, often by interest rate.
The takeaway here is that working hard to pay down your debts in the short term will help clear the pathway to contributing more money to your retirement fund.
The Power of Compound Interest
Question: Why is starting earlier always better when it comes to maximizing your retirement savings? Answer: Compound interest.
As Business Insider writes, “Compound interest occurs when the interest that accrues to an amount of money in turn accrues interest itself.” In other words, any money you save in a retirement account will collect interest. Then that money will collect interest, creating a positive snowball effect. This is why people who start saving the same amount at age 25 end up with so much more money than people who start even 10 years later.
Data shows that women are, in fact, falling behind when it comes to retirement savings. It’s very important for everyone to prepare for the future—starting now. Eliminating debt and streamlining your budget can help you come up with more money to put away as soon as possible.
© 2018, Khaleef “Fat Guy” Crumbley. All rights reserved.