Saving for retirement requires thoughtful planning and it’s never too late to start. Between paying for your everyday expenses including groceries, rent, student loans, bills, and your ever-present coffee habit, it can seem nearly impossible to find a few dollars left over to put toward your future. However, building up a nest egg isn’t just important, it’s imperative for your elder years.
But, luckily for you, finding a great retirement plan to suit your needs is easier than you think. Here are six ways to save for retirement to help make those golden years feel, well, golden.
Create and Stick to a Budget
The first step everyone should take in saving for retirement is perhaps the easiest one: Create a budget and stick to it — forever. Here’s how to do just that in six easy steps:
1. Gather your documents. Shore up all your bills including credit cards, loans, mortgage or rent, and more. Here is where you document every penny coming out of your pocket each month.
2. List all of your income. Find your pay stubs and add up any extra cash you make on the side using your after-tax take-home pay.
3. List all of your current savings. From here, you can see how far you have to go until you reach your retirement goals.
4. Calculate your retirement spending. Decide how much money you need to live comfortably in retirement. If you’re unsure of what your ideal retirement number is, use a retirement calculator to get a better idea.
5. Set reasonable expectations and be realistic about your spending. When you look at your current bills vs. income how much is left over for retirement savings? Are there areas you can be spending less, such as getting rid of an expensive gym membership, reeling in your takeout habit, or shopping just a bit less? Here is where you need to be very honest with yourself and decide what you’re willing to give up to help you hit that target retirement number. Need help keeping track of your spending? Get started with SoFi Relay to keep tabs on your cash flow and spending habits.
6. Adjust accordingly. Every few months take a look at your budget and make sure you’re staying on track. If a new bill comes up, an expensive life event occurs, or if you gain new income adjust your budgets and keep saving what you can.
Get in on an Employer-Matched 401K Program
Preparing for retirement should begin the moment you start your first job.
If you’re fortunate enough to find yourself gainfully employed in your post-collegiate life, you’re likely lucky enough to take part in an employer-matched 401k program as well. With this program, your employer could match up to a certain percent of your contributions, thus adding in essentially free extra cash for your savings.
Starting a 401k savings program early in life can really add up in the future thanks to compound interest. If you happen to start your retirement savings plan later in life, you can always take advantage of catch up contributions. Those over the age of 50 are allowed to contribute an additional $6,000 a year to help them save just a bit more before hitting retirement age.
Adding an Individual Retirement Account to the Mix
If you’re one of the many freelancers in the American workforce, you may be thinking of opening an Individual Retirement Account, otherwise known as an IRA, which can be an excellent choice to make to prepare for retirement.
Like a 401k, an IRA allows you to put away money for your retirement. However, as of 2019 , the maximum contribution you can put into your IRA each year caps at $6,000 ($7,000 for those over 50).
Both the IRA and 401k offer tax-deductible contributions. IRAs also have a Roth option, which means your contributions are taxed, however, your withdrawals in retirement won’t be.
You control your IRA, not a larger company, so you can decide which financial institution you want to go with, how much you want to contribute each month, and if you want to go Roth or traditional.
Best of all, if you happen to be part of the lucky few who can afford to invest money in both an IRA and a 401k, you can do that too. Read more about the 401k vs. IRA here.
Handling Debt and Retirement Savings
Should you pay off debt or save for retirement? That is the financial conundrum for the ages. So, a good solution to this problem is to do both.
Remember how we told you before to create a budget and stick to it? The same goes for your loan repayments as well. Make sure to add those payments to your monthly budgeting expenses and if you still have dollars left over after accounting for all your bills you should start socking that away for retirement.
And, if your student loan debt feels out of control, as it does for many Americans, you may want to look into student loan refinancing. By refinancing your student loan, you could significantly lower your interest rate and thus pay off your debt faster. Then, after the loan is paid off, reallocate that money to saving for retirement also.
Ways to Further Boost Your Retirement Savings
Giving Yourself a Raise with a Side Hustle
Side hustles are all the rage, so why not get in on the action and get one too? Working a side gig that can be performed in your spare time can seriously pay off in the future, especially when you consider some side hustles can earn you an extra $500 a month or more .
There are several things to consider when thinking of adding an extra job to your résumé, including evaluating what you’re willing to give up in order to make time for more work. But, if you can put your skills to use — such as copy editing, photography, design, or consulting — you can think about this as less of a side hustle and more of a way to hone your client list.
If you need a little help deciding which side hustle is right for you just answer these five questions and start earning more today.
Including Real Estate in Your Portfolio
If you already have a budget in place, an emergency savings account, and you’re maxing out your contributions to your 401k or IRA, then adding real estate could be a good way to diversify your portfolio.
However, it’s good to not think of a primary residence as an investment. (Though someday, you could decide to rent the home for income, live in it as a paid off asset, or sell it to cash in.) Instead, to dip your toe into real estate investing without taking out a second mortgage, you can consider a real estate investment trust, or REIT.
REITspool investor assets to purchase or finance a portfolio of properties such as shopping malls, hospitals, or office parks.
It essentially allows investors to own a slice without having to buy the whole pie. There are, of course, risks that come along with REITs—in addition to the market risks you’re used to hearing about, REITs are also significantly impacted by real estate prices. They can also potentially generate a negative return when interest rates rise.
Automating Your Savings with a Wealth Management Account
Diversifying your retirement portfolio is a great way to actively prepare for retirement. One of the easiest ways to do that is with an automated investment account like SoFi Invest®.
There, you can personalize your investments by setting targeted goals for your current age, project when you want to retire, and get advice from an actual human being on how to get there.
Moreover, you don’t have to do the work if you don’t want to. Just allocate a specific dollar amount to go into your automated account each month and let the SoFi team handle all the auto-investing and auto-adjusting that’s needed.
This way you can focus on the bigger picture, like all the places you’ll travel, all the golf you’ll play and all the sunsets you’ll watch during the best years of your life.
Choose how you want to invest.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.