Saving for retirement can be challenging. It’s hard to prioritize such a long-term goal when there are so many competing demands for your money through every stage of life. So it’s no wonder that, for many people, saving for retirement is an afterthought. And it shows. Nearly half of American families have no retirement account savings at all1 and more than half of pre-retirees (57%) expect to have a more difficult time saving for retirement than their parents or grandparents did.2 But how can you start saving, or saving more, to help prioritize saving for retirement?
This America Saves Week, we explore how you can turn 5 key life events into opportunities that can help to boost your retirement savings.
1. Getting a Raise
Congratulations! Your hard work has been rewarded with a raise. Before you start spending all of your increased salary, you should consider putting some of it aside to reward your future self. Since you’ve already been living on a lower salary, you could continue that lifestyle and direct the extra amount in your paycheck toward retirement savings. You could also choose to keep half the extra income from your raise and put the other half into retirement savings. That way you’ll feel a bit of a bump up in your lifestyle while still saving for retirement.
2. A Child Starting Kindergarten
After you’ve shed a few tears because your baby is growing up too fast, take a look at your monthly budget, as this may help you feel better. If your child is going off to a public school, you’re likely to realize savings once you’re no longer paying for daycare or preschool (some states do offer free pre-kindergarten programs). Because you’re already used to taking that chunk out for educational expenses, setting aside even half the amount you paid for childcare shouldn’t feel too onerous.
3. A New Job
Landing a new job can be the perfect opportunity for a fresh start, in numerous ways. Starting a job at a new company is a great time to rededicate yourself to saving, especially if your new position comes with a higher salary. Many companies automatically enroll their employees into a retirement savings plan, but usually at too low of a savings level. Challenge yourself to contribute a few percentage points more at your new job than you did in your last one. You could make it a goal to ensure you contribute at least enough to take full advantage of the company match, if there is one.
4. Turning 50
Don’t despair when the unrequested AARP membership shows up in your mailbox. Hitting the half-century mark is cause for celebration — at least where retirement saving is concerned. Starting at age 50, you’re now eligible for catch-up contributions in your 401(k) and IRA accounts. For 2018, you’re able to save an extra $6,000 per year in 401k accounts and an extra $1,000 in IRA accounts.3 So whether you contribute up to the limit or just a portion of it, those sums will add up, because, at 50, you still could have more than a decade to contribute.
5. Becoming an Empty-Nester
Depending on how old you were when you started a family, you might have a few years to turbocharge your savings after the kids finally fly from the nest. You may no longer be footing college tuition bills, car insurance payments, or your child’s cell phone charges. Household expenses including food bills may have also decreased. If you crank up your retirement savings at this time, you may not even feel it in your day to day life, given what a big bite children can take out of the family budget.
Whether you use different life events to boost your savings, or just save a little bit whenever you can, it’s important to remember that saving any amount for the future is better than not saving at all. Even small amounts will grow and compound over the years. To see how small changes to your savings behaviors can have a big difference tomorrow, check out Prudential’s Time to Up It Opens in a new window tool.
1. Economic Policy Institute, The State of American Retirement, March 2016.
2. 2016 Retirement Preparedness Study PDF opens in a new window , PGIM Investments.
3. Internal Revenue Service, https://www.irs.gov/pub/irs-drop/n-17-64.pdf PDF opens in a new window
1023042-00001-00 Ed. 6/2019