When you’re young, it’s easy to justify putting off saving for retirement. There are always expenses that seem more urgent than retirement, especially for someone starting a family while simultaneously launching a career. But once you start to approach retirement age, the gap between how much money you have saved and how much you’ll need will become glaringly obvious. At this point, it’s time to focus on saving your retirement.
Find the gap
Before you can work on solving the problem, you need to know just how big the problem is. So your first step should be calculating exactly how much money you’ll need every month in retirement to meet your basic expenses, and compare that to how much income you’ll be making each month in retirement. The difference between those numbers is what you’ll need to find a way to fix.
Add up your expenses and income
Yes, writing up a budget is tedious and annoying, but it’s a critical part of the process of saving your retirement from the jaws of financial disaster. Start by adding up your current expenses, then think about how those expenses will change during retirement. Most will go down, but you can expect healthcare expenses to rise over time. A retirement expense calculator can help quite a bit with this process. Next, look at your sources of income in retirement. You can pull up your Social Security statement online and see how much you’ll be getting from the agency monthly; if you’re within a few years of retirement, this number should be pretty close to the actual amount you’ll get. Retirement savings accounts such as IRAs and 401(k)s are another likely source of income; depending on when you retire, you can safely draw 3% to 4% of these accounts each year without depleting them. If you’re fortunate enough to have a pension from a current or former employer, include that number in the mix.
If the financial gap is small: less than $100 per month
Let’s say you crunch the numbers for your income and expenses and discover that you’ll be short by about $50 per month. This is actually (sort of) good news, because a gap of less than $100 per month is usually fairly easy to make up. The first place to start is taking a look at your expenses. Is there any place that you are wasting money? Downgrading unnecessarily expensive cellphone plans, insurance plans, and so on may be enough to close your income/expense gap. If not, you may need to cut out some desirable but not necessary expenses, such as monthly subscriptions and…