Between paying for your everyday expenses including groceries, rent, student loans, bills, and everyday expenses, it can seem nearly impossible to find a few dollars left over to put toward retirement—especially when that might be decades away. However, building up a nest egg isn’t just important, it’s urgent. The sooner you start, the more financially secure you should be by the time retirement rolls around.
Finding a solid retirement plan to suit your needs is likely easier than you think. Here are seven ways to save for retirement to help make those golden years feel, well, golden.
6 Ways to Save For Retirement
1. 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. Calculating your own monthly budget can be simple—just follow these steps.
• Gather your documents. Shore up all your bills including credit cards, loans, mortgage or rent, so that you can document every penny coming out of your pocket each month.
• 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.
• List all of your current savings. From here, you can see how far you have to go until you reach your retirement goals.
• 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.
• 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. Finding little ways to save for retirement can have a big impact down the road. Need help keeping track of your spending? Get started with SoFi Relay to keep tabs on your cash flow and spending habits.
• 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.
2. Get in on an Employer-Matched 401(k) Program
Preparing for retirement should begin the moment you start your first job.
There are many advantages to contributing to an employer-matched 401(k) program. With this program, your employer could match up to a certain percent of your contributions, essentially giving you free extra cash to save.
Of all the ways to save for retirement, this might be the simplest, if it’s offered by your employer. After all, you can set up automatic deductions from your paycheck—it’s like you’ll never miss the money at all.
Starting a 401(k) savings program early in life can really add up in the future thanks to compound interest. On the other hand, if you happen to start your retirement savings plan later in life, you can always take advantage of catch-up contributions that go beyond the 2022 annual contribution limit of $20,500. Individuals over the age of 50 are allowed to contribute an additional $6,500 a year to help them save just a bit more before hitting retirement age.
3. Add an Individual Retirement Account to the Mix
If you’re one of the many freelancers or contracted workers in the American workforce, opening an Individual Retirement Account, otherwise known as an IRA, can be an excellent way to save for retirement.
Like a 401(k), an IRA allows you to put away money for your retirement. However, for 2022, 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 401(k) offer tax-deductible contributions. Roth IRAs are another option: With a Roth IRA, your contributions are taxed, which means 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.
For those who can afford to invest money in both an IRA and a 401(k), that’s also an option that can boost retirement savings.
4. Handle Debt
Should you save for retirement or pay off student loans? That is the financial conundrum for modern times. A good solution to this problem is to do both.
Just as it can be helpful to create a budget and stick to it, it can be helpful to create a loan repayment plan as well. Add those payments to your monthly budgeting expenses and if you still have dollars left over after accounting for all your bills, start socking that away for retirement.
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 potentially pay off your debt faster. Once the loan is paid off, you will be able to reallocate that money to save for retirement.
5. Add Income with a Side Hustle
Working a side gig that can be performed in your spare time can seriously pay off in the future, especially when you consider that the average side hustle can bring in 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.
A side hustle should be one way to save for retirement that you’ll enjoy doing.
6. Include Real Estate in Your Portfolio
There’s no one best way to save for retirement—sometimes a multi-pronged approach can work best. If you already have a budget and an emergency savings account, and you’re maxing out your contributions to your 401(k) or IRA, then adding real estate could be another way to diversify your portfolio.
In general, 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.
REITs pool investor assets to purchase or finance a portfolio of properties such as shopping malls, hospitals, or office parks.
A REIT 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 typical market risks, REITs are also significantly impacted by real estate prices. They can also potentially generate a negative return when interest rates rise.
The Takeaway
It’s never too early to start planning for retirement. Once you have a monthly budget in place, it’s easier to determine how much you can afford to save each month, in whatever retirement plan or plans you feel are right for you.
Diversifying your retirement portfolio can be a great way to invest for retirement. One way to do that is with an automated investment account like SoFi Invest®. With SoFi Invest, 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. Then just keep living your life as you save for retirement.
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