If you’re struggling to find money to save for retirement, maybe it’s time to take a close look at your current spending. If a lot of your hard-earned cash is going toward “wants” that add little or no lasting value to your life, consider the potential consequences for your retirement.
Sixty-four percent of 401(k) plan participants surveyed in 2018 by Charles Schwab said they wish they had spent less in the past on short-term nonessentials and saved more for retirement1. If you have similar regrets or want to avoid having them in the future, it’s never too late to chart a new course
Track all your expenses for one month and put them all into categories (like groceries, restaurant meals, concert tickets, etc.). Add up the total for each category. Then, multiply each total by 12 to come up with an annualized amount for the category.
Now you’re ready to make some decisions. You’ll find there are some expenses you need (think rent or mortgage) and some you can do without (like those magazines you never read). Certain discretionary items may make you happy today, but are you willing to reduce or eliminate spending on them in exchange for greater retirement security?
You don’t necessarily have to take an axe to your spending, because even relatively minor reductions can help you build a significantly bigger nest egg for retirement. Think about replacing some of your go-to pleasures with lower-cost or no-cost alternatives. For example:
Let’s imagine that you manage to cut your spending by $200 a month. If you invest that amount each month at an average annual return of 6.5%, after 20 years, you’ll have a pot of money worth over $98,000 – and maybe fewer regrets to weigh you down.
For more information or financial assistance, actively-contributing members of the Annuity Plan can call an EY financial planner at 1.877.927.1047
"Meals Out, Pricey Clothes & New Cars Top Spending Regrets for Americans Trying to Save for Retirement, Schwab 401(k) Survey Finds." Source: , August 27, 2018.
This article is used with permission of Ernst & Young LLP.