If you’ve started saving well before your 30th birthday, you’re okay diverting 10 percent of your income toward retirement, says Alicia Klein, a Tucson, Arizona-based financial advisor and a member of the Alliance of Comprehensive Planners. But for everyone else – and it sounds like you’re included – you should really bump that number up to 15 percent.
It may give you some solace to know that you’re not exactly alone when it comes to a skinny investment account. According to a recent Bankrate survey, only 16 percent of Americans said they’re saving more than 15 percent of each paycheck for their post-working years. Twenty-one percent aren’t kicking in anything at all, which is a stark commentary on the state of affairs in America.
While the fact that a lot of families are struggling may be cold comfort. At some point — preferably sooner than later — we all need to take a hard look at how we’re saving. Otherwise, retirement as you envision it simply won’t be an option.
It sounds like you’ve had that epiphany already. So what next? Here are what financial advisors say are the best ways to ramp up your savings.
1. Trick Yourself into Saving More.
Once your paycheck hits your bank account, there’s a big chance you’ll use it for something other than your retirement account – and probably much less important, like a trip to the mall or a nice meal. So, don’t give yourself that temptation. If 10 percent of monthly earnings is automatically being diverted toward your 401(k) now, Klein recommends going up a notch to 11 percent. “It might feel tight for that first month or two, but you acclimate,” she says. “Then incrementally increase again until you reach 15 percent or whatever your target is.”
Rodger Friedman, a founding partner at Steward Partners Global Advisory in Bethesda, Maryland, says he uses a similar approach for clients who are just starting on their nest egg. He tells younger workers to start by putting away 1 percent of their income, or $750 a year for someone making a $75,000 salary. “It’s just a cup of coffee a day,” says Friedman.
Over time he asks them to increase their contribution by one percentage point at a time. “Over the course of a year, they may be saving three, four, or even five percent,” he says. “It’s like getting into a cold pool one toe at a time.”
