Sure, it’s important to save for retirement. But other major priorities, such as your kids’ private school, or a big wedding to plan, could throw you off course.
So now that you’ve been at it for a while and have grappled with all kinds of expenses, you may be thinking, “Will I have enough to live the retirement I’ve planned?” If you’re willing to make some changes and a few sacrifices here and there, you’ll find that retirement doesn’t need to be an either/or proposition.
This article discusses some typical challenges to retirement-savings success—and how you can address them while keeping your retirement savings humming along.
The common challenges to maintaining your retirement savings plan
Roadblocks happen. Understand the common challenges to maintaining your retirement savings plan by taking a look at them one by one and deciding if they should take precedence over your security in retirement.
Not following a budget
It may almost sound too simple to list. But when your household lacks a sound spending plan, your savings are bound to suffer.
Lack of emergency savings
No household should be without an emergency savings account—typically three to six months of take-home pay. It provides you with a buffer when you need it, while also helping you to avoid either raiding a retirement account or racking up yet more credit-card debt. But it shouldn’t tip the scales against retirement savings.
Carrying ongoing debt
Debt is one of the most common retirement-savings challenges—particularly non-secured debt, such as credit card balances and student loans.
You may be thinking “I can’t really save for retirement until I’m debt-free.” But that kind of first-this-then-that approach to retirement planning could waste valuable years of gaining compound interest on your retirement account balances. What’s more, if you pay off your debts while also saving, your savings’ compounded growth may exceed your debt’s compounded interest. And that’s just what you want.
Start by addressing the debt roadblock with a
Sudden changes in household expenses
Perhaps you’ve had some totally unexpected expenses to manage. Consider these possibilities:
- Your son or daughter returned home after losing their job to work on “next steps.” (If so, you’re in good company: While the numbers fluctuated quite a bit during the pandemic and at one point hit over 50%, it was last reported that
43% of young adultswere living with their parents.
- Your parents have moved in with you and your family due to budget concerns. You’re pitching in for their medical and everyday expenses.
- An unexpected surgery has suddenly saddled you with a five-digit hospital bill for out-of-network charges.
If you don’t have sufficient emergency funds, such expenses may have you considering a retirement-fund withdrawal. In many cases, 401(k) investors opt for tapping their 401(k) versus IRA. But withdrawing funds early from a qualified retirement plan should be an absolute last resort. Additionally, funds may not be available from your employer plan for medical emergencies or have specific loan provisions. If the provisions of a 401(k) plan do let you borrow the money and pay yourself back over time, it will be with interest. This may seem foolproof. But think about the bigger picture: Can the interest you pay replace the growth you could have had with that cash still in your account? And do you have time to make up the difference?
Contributing to college savings or costs
Perhaps you’re staring down the dilemma of saving for and managing rising your children's college costs. In Academic Year 2020-2021, American parents contributed
It’s possible to contribute to your kids’ futures while not shortchanging your future financial security.
Prioritizing other short-term savings goals
Savings isn’t just about rainy days and retirement. You’ll want money already set aside for when your children get married, you want to buy a new car or a lake house or take a big vacation for your 25th wedding anniversary. Budgeting can help you provide for your family’s most joyful moments while keeping to your savings plan.
Ways to stay on track with your goals
You’d be surprised at how much you can still accomplish financially when you have a plan to follow. Here's how to work through those roadblocks.
Set and maintain a realistic household budget
Without a budget, you’ll have no way of knowing if you’re balancing spending, saving and debt management. Start by
Make compound interest work hard for you
Sure, you may not always understand all the nitty-gritty details of how
How can you take full advantage of this secret weapon? Contribute regularly to your plan—no matter how little you’re able to deposit—and leave it alone. You could be amazed at the results if you give yourself time.
Max out your 401(k) and IRA contributions
You hear this one all the time, and there’s are at least four great reasons for contributing as much as you are allowed by the IRS:
- You’ll reduce your adjusted gross income (AGI), giving you more money for your shorter-term financial goals, like household savings or making a large purchase.
- The more you contribute as early as possible, the greater the opportunity for compounded growth. It can be a great hedge against inflation, one of the most significant risks to your retirement income plan.
- If you’re 50 or older, you can make larger “catch-up contributions” to save on taxes and increase growth potential. If you have a 401(k) or traditional IRA, the money may be deductible from your taxable gross income for the current year as it grows tax-deferred in your account.
- You don’t want to leave matching funds from your employer on the table—it’s truly “free money.” Even if you can’t max out every year, matching funds help in compensating for those times.
Size up your debt and make a plan to wipe it out
Having debt is no reason to put off retirement savings, especially if your debt is relatively low-cost. However, in some cases, student or consumer debt may stand in the way of savings that you need, per your life goals and retirement vision. Luckily, you have options.
Pay off debt,starting with the highest interest rate loan first and moving down the list.
- When you refinance a student loan or consumer debt, you can lower your interest. You can either keep the same monthly payment and pay off the loan faster or lower the monthly payment (which extends the loan’s duration and total cost.) You may want to convert a variable interest rate to a fixed interest rate.
- Another debt-management tool, debt consolidation focuses on reducing the cost of carrying a loan, even if it means extending the term.
- Automate your debt payments. You’ll be surprised how much it reduces the pain when you don’t have to hit “send” manually.
Automate your household savings contributions, including emergency savings
When you set up a small automatic savings deduction, chances are excellent that you won’t even notice the pinch. You may even want to make deposits to a separate bank that doesn’t provide immediate access to your cash, as a deterrent against impulse withdrawals.
Make the most of bonuses or inheritance
Raises and less expected windfalls such as an inheritance or a tax refund are a great opportunity to balance out your savings. Split the net proceeds among your highest-interest debt, retirement accounts, emergency savings accounts and maybe 10% or so towards something fun. That way, you’re covering all of your priorities, while also not depriving yourself of having some fun right now.
Create a college savings strategy with your children
Will you pay for some or all of your child’s college education? If the answer is “some,” what other sources can fill the gap?
No matter how well you plan, you will more than likely face challenges to your retirement goals. When this happens, you can incorporate some of the strategies and tactics we’ve discussed here to help stay on track with your retirement goals.