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A recent Ramsey Solutions research report looked at the overall state of retirement in America and found nearly half of Americans aren’t saving for retirement, and those who invest aren’t doing enough.
So what’s keeping savers from going the distance with their nest egg? Let’s look at four barriers and possible solutions to overcome them:
Retirement: What’s Standing in the Way?
Cost of Living
Cost of living is the top reason people don’t save more for retirement across all demographic groups.
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According to Nerdwallet, cost of living has increased 30% over the past 13 years, yet household income has only grown 28%. This gap can make it harder for many families to tackle everyday expenses. But that doesn’t have to spell disaster for retirement. Here are a few tips to outsmart the upswing of living costs:
- Don’t spend your raises. Use the bump in salary to contribute more to retirement savings. Let’s say you make $50,000 a year and get a 3% raise. That works out to an extra $1,500, or $125 per month. Add $1,500 to your retirement fund for the next 30 years, and you could give your nest egg a $271,000 boost.
- Stick to a written monthly budget. If you haven’t budgeted in the past, now’s a great time to start! A budget enables you to take control of your money by helping you make a plan for every dollar you spend. Budgeting’s an acquired habit, so give yourself time to get the hang of it.
Spending Too Much on Kids’ Activities
Driving your kids around town for soccer practice and piano lessons doesn’t just drain your gas tank. It can leave your nest egg riding on empty too.
Consider this: The average cost for extracurricular activities last year was $739 per student—a $50 increase from the prior year, according to Backpack Index, an annual study of the cost of school supplies and other school-related expenses. Saving $739 annually for 13 years could add over $22,000 to your retirement account!
Keep extracurricular expenses in check with these tips:
- Encourage your kids to play one sport—or musical instrument—per season. Not only will this help your budget, but it might increase your family time as well. Let’s say your kid plays the piano and guitar. If you cut back on guitar lessons and save $150 each month, that’s $1,800 a year!
- Trade travel teams for recreational leagues. Not only do rec leagues cost less, they’re a great way to build relationships with community leaders. Keeping it local could add thousands to your retirement nest egg in the long run.
Unruly Medical Expenses, Especially for Baby Boomers
According to the report, 54% of Baby Boomers still in the workforce have less than $25,000 saved in their retirement fund. Of that group, more than half have no retirement savings at all.
So what’s holding this generation back? According to the Ramsey Solutions research report, medical expenses are a top financial hurdle for Baby Boomers.
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Even with those alarming stats, Baby Boomers—or anyone who’s behind on retirement savings—can turn things around. Check out these tips:
- Open a Health Savings Account (HSA). An HSA is a great choice for those who are healthy and don’t visit the doctor often. Here’s why: An HSA is a tax-advantaged medical savings account for those who have a high-deductible health insurance plan. Many plans cover 100% of medical expenses once the deductible is met. With an HSA, you can save and even invest money to pay for deductibles and other medical expenses tax-free.
- If you’re over age 50, take advantage of catch-up contributions. Hitting the big 5-0 comes with one big benefit: You can invest an additional $1,000 in your Roth IRA and an extra $6,000 in your workplace retirement plan each year on top of the $23,500 you were already permitted to invest in tax-advantaged accounts. That’s a grand total of $30,500 in potential annual contributions. Max out your 401(k) and Roth IRA for 10 years, and you could have $534,000 saved for retirement. In 20 years? You could have $1.92 million!
Connect with an investing professional. A pro can help you customize a plan for reaching your goal, especially if you have some catching up to do.
Credit Card Debt
According to the Ramsey Solutions research report, almost one-third of savers who are in debt (31%) ranked credit card debt as a top reason they don’t save more for retirement.
You might have already kicked the plastic habit, but here are a few reminders of why it’s important to stay away from debt:
- Personal finance is 80% behavior and 20% math. But here’s some math to reinforce why behavior matters: If you invest $1,292—the average total a household pays in annual credit card interest according to Nerdwallet—for 30 years, you could add more than $230,000 to your nest egg.
- Debt keeps you from investing sooner. Time is an essential ingredient to building a healthy nest egg. If you make $45,000 and delay investing 15% of your income for 10 years to pay off debt, you’ve lost an estimated $118,000 in retirement savings thanks to the effect of compound growth.
Turn Retirement Savings Obstacles Into Opportunities
We understand how easy it is to let life get in the way of your retirement savings. But with the right plan, it shouldn’t keep you from hitting your goals.
Ready to break through the savings barriers? A SmartVestor Pro can help you outline a plan no matter how much you’re currently contributing to your retirement. Reach out to a SmartVestor Pro today!