Think You Can’t Afford to Save?
Between rent, car payments and daily expenses it may seem impossible to save for retirement, but these tips can help even lower-wage workers
Editor’s note: This is an installment of the “Retirement for the Rest of Us” series, a Next Avenue initiative.
Across the board, working class Americans struggle the most to set aside savings for retirement. Some 68% of respondents in a National Institute on Retirement Security study said the average worker cannot save enough on their own to have a secure retirement.
According to the same study, 65% of current workers say it's likely they will have to work past retirement age to have enough money to retire.
While many companies offer retirement-savings programs like 401(k) plans and often match at least part of employees' savings in them, researchers at the Wharton School of the University of Pennsylvania have found that 56 million private-sector workers lack access to retirement savings plans through their jobs.
Save by Default
To create new channels for retirement savings, eleven states have launched automated savings programs and more states are joining them, such as North Carolina, which is considering a state-sponsored retirement savings account called Work & Save. In California, Connecticut, Illinois and Oregon, which have all implemented such programs and started regular paycheck withdrawals, average savings rates are about $140 a month per worker.
Generally, people who work for companies that do not offer employer-sponsored retirement savings are automatically enrolled in the state-sponsored program but can opt out.
65% of current workers say it's likely they will have to work past retirement age to have enough money to retire.
In CalSavers, California's automated savings program, employees can choose their contribution rate and even change their investments.
If you find yourself struggling to set aside regular savings for retirement, here are a few strategies you can take to work your way towards saving.
Waste Less, Save More
According to the U.S. Bureau of Labor Consumer Expenditure Survey in 2022, Americans spent an average of $438 on food per month, or roughly $5,250 a year. Meanwhile, U.S. households waste almost one-third of the food they buy, according to Penn State University researchers. That means nearly $1,700 worth of food an average family buys each year ends up in the trash.
Consumer finance expert Andrea Woroch recommends keeping your grocery bill under control by planning a week's worth of meals and buying only what you plan to eat. It also helps to look for recipes that share ingredients so you won't have to throw away, say, half a can of tomato paste.
"By planning out meals, cross-referencing your ingredient list with what you already have at home so you don't double up, limiting how much fresh food you buy in bulk and avoiding impulse purchases, you could save almost $2,000 over the course of a year," Woroch said. "Meanwhile, using rewards apps like Fetch will give you cash back for your grocery purchases that you can use to offset your future purchase needs and stash it away."
Ask for Advice
Navigating retirement and saving for retirement on your own can be overwhelming. Take advantage of local resources and experts who can guide you through the process.
One of the biggest budgetary expenses for retirees or older adults is health care. Retirement consultant Marcia Mantell recommends setting up time with a local State Health Insurance Assistance Program counselor for a free-of-charge session to discuss options for reducing your health insurance premiums and other health care costs like prescription drugs.
One of the biggest budgetary expenses for retirees or older adults is health care.
You should also check to see if your city has an Aging Network location near you. The Older Americans Act of 1965 created the Aging Network, a national network of agencies that provide services for older adults including financial assistance, home repair, legal assistance and nutrition services.
Day-to-day expenses can really add up, draining your finances to the point that you don't have sufficient funds left to set aside for retirement. By tapping into local resources, you'll be stretching your funds further and hopefully can put money towards retirement savings.
Catch Up, if You Can
Haven't been making regular contributions to your 401(k)? Catch-up contributions are your friend. According to the IRS, catch-up contributions are elective deferrals made by a participant aged 50 or older that exceeds a statutory limit, a plan-imposed limit, or the actual deferral percentage test limit for highly compensated employees.
"Consider setting aside any windfalls, like bonuses or gifts, for the future rather than spending them immediately."
"Take advantage of catch-up provisions in employer-sponsored plans and IRAs if you're over the age of 50," said Donny Gamble, CEO of Retirement Investments. "You can contribute an extra $6,500 to your 401(k) each year or up to an $1,000 to an IRA in most cases."
Start Small if You Must, but Start
Every journey begins with the first step and saving for retirement is no exception. Gamble recommends starting small by opening a retirement account and contributing only what you can, even if it's just $50 to $100 per month. Those small contributions will add up over time and they open the door to contributing larger amounts to your savings once you're financially able to do so.
"Consider setting aside any windfalls, like bonuses or gifts, for the future rather than spending them immediately," Gamble added.
If you do happen to work for an employer that offers an employer-sponsored retirement plan, take advantage of it if you possibly can. Employer matching programs are a source of free money that stretch your contributions, and 401(k) plans can reduce your tax liability at the end of the year as well as your tax withholding each pay period.
