5 Ways to Save for Retirement…before it’s too late

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Time is your most important ally when it comes to saving enough money to become financially independent and retire. By starting early and saving regularly, earnings on your savings will grow to the point that they will be large enough to support you. Allowing money the time to grow and accumulate can make a big difference in the timing of your financial independence.

A special report1 released last fall by the Stanford Center on Longevity listed several key findings:

  • Of the workers who save in a work-based plan, most members of each age cohort aren’t meeting targeted retirement savings goals even under the most optimistic assumptions, which considers both employee and employer contributions.
  • Younger generations—the millennial and generation X cohorts—are lagging behind their targeted goals more than older generations.

The report also determined what savings rate is required for a middle-income American wage earner to replace 70% of their salary in order to retire at age 65. The following tables include employee and employer contributions:

Retirement age Savings rate when starting at age:
25 35 45
62 15% 24% 44%
65 10% 15% 27%
67 7% 12% 20%
70 4% 6% 10%
Projections by Munnell, et al. 2
Retirement age Savings rate when starting at age:
25 35 45
65 17% 20% 25%
67 14% 16% 20%
70 10% 12% 14%
Projections by Aon Hewitt 3

The report concluded that Americans planning to retire at age 65 need to put aside 10% to 17% of their income for retirement preparation if they start saving as early as age 25. However, if they don’t start saving until age 35, then they need to contribute 15–20% of their income to their retirement accounts if they want to retire at age 65. Losing 10 years of savings and compounding could require doubling the amount saved to reach the same goal! The discipline of saving money on a regular basis needs to be taught to younger generations as early as possible. Saving at least 10% of their income is a good place to start.

The first step to closing the retirement savings gap is to increase savings.

Here are 5 ways to increase savings:

  1. Increase contribution to your employer-sponsored retirement plan

    Workers with a 401(k), 403(b), and thrift savings plans can resolve to increase their contributions by 1%. This may not sound like much, but it can make a significant difference over time. The median household income in the United States was $62,175 in 20184. A 1% increase in savings amounts to $622 a year more in contributions. This amount compounded over a 30-year career makes a noticeable difference in a retiree’s income.

  2. Save the tax refund

    The IRS reported the average tax refund for the 2018 tax year was $2,7255. This amount can be used to fund nearly half of a Roth IRA (maximum annual contribution of $6,000).

  3. Adjust tax withholding

    Adjust your tax withholding to get your refund now in each paycheck. An average worker who gets paid every other week can decrease their tax withholding by $104 per pay based on the average tax refund listed above. Saving money every two weeks instead of as a lump sum at the end of the year can increase a nest egg by several thousand dollars over 20 years.

  4. Bank the bonus and/or raise

    Pay increases can be used to automatically increase retirement savings. Contributions to the employer’s plan can be increased by the amount of the raise. You won’t notice it now in your paycheck, but you’ll see it year-after-year as your retirement account accelerates.

  5. Cut $100 per month from household expenses

    Review your monthly expenses with the objective of finding $100 per month savings. Eat out less, take your lunch to work, or cut the cable and cell phone bills. Budget experts say drinking water instead of soda and iced tea can save you $30 per month, and it’s better for your health.

The second step to closing the retirement savings gap is to assure those savings are growing properly.

Many workers are nervous about investing in stocks. Even setting the volatility aside, most don’t feel comfortable choosing investments. Target-date funds were created to address this issue and have become one of the most popular choices for retirement savers.

Target-date funds allow workers to choose a single investment that corresponds to their year of retirement. The worker gets a mix of stocks and bonds appropriate for their age without the need to construct the portfolio. Critics of the funds say they aren’t personalized enough. They also worry their use encourages people to become complacent about investing.

However, all investments have some shortcomings. All the fund really needs to accomplish is to do a better job of investing than the worker would be able to do on their own.

It’s time for Americans to put compounding to work. Saving more and better investing can help close the retirement gap. Most people know they need to save more and start sooner. The challenge is to get retirement savings high enough on their priority list.

Rick’s Tips:

  • Researchers have determined a 25-year old needs to save 10%–17% annually to replace 70% of the salary income at age 65.
  • One way to increase savings is by raising the amount of salary put into an employer-sponsored retirement plan.
  • Better investing can also help retirement savings grow over time.


  1. Seeing Our Way to Financial Security in the Age of Increased Longevity. October 2018. Stanford Center on Longevity. Sightlinesproject.stanford.edu
  2. Munnell, A., Webb, A., and Hou, W. (2014). How Much Should People Save? Boston College Center for Retirement Research, July, Number 14-11.
  3. Aon Hewitt. (2016). The Real Deal: 2015 Retirement Income Adequacy at Large Companies.
  4. Source: Sentier Research
  5. What was the average tax refund this year? By Paul Davidson. April 25, 2019. USA Today

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