How to save money for retirement can be an adventure. That’s because, for all generations, it can involve fresh approaches to one’s relationship to money. That includes money earned and how that can be accomplished in non-traditional ways, money not spent, money invested for wealth creation, and money not lost. The U.S. Department of Labor cites experts who project that to maintain a current lifestyle in retirement, at least 70 percent of pre-retirement money will be required.
During the affluence of the late 20th century, there was the assumption among Baby Boomers, Generation X, and Millennials that even better economic times were ahead. Therefore, too many spent not only all they were earning, they even acquired excessive debt. Saving for retirement demands breaking that habit. It will be exciting to watch one’s funds grow, instead of debt ballooning.
1. Increase Revenue
Among the proven saving behaviors is, number-one, to increase the amount of revenue coming in. That could be through renting a room in one’s house, regularly selling unneeded merchandise online or at flea markets, taking on a second job, and/or starting a business on the side. Ideally, all or most of that incremental revenue should be socked away in an account that at least yields compounded interest. Better if it’s invested. In no situation should the additional funds be framed as “splurge money.”
2. Contribute to IRAs
Secondly, research and experience demonstrate that establishing and contributing to employer and individual retirement plans (IRAs) are necessary. Those are structured to require a pre-designated amount of deposit monthly. That embeds the discipline of regular saving. In addition, they provide tax advantages. Also, they are managed by investment professionals whose objective is to grow the principle.
However, the burden of monitoring that and initiating course correction is on investors themselves. Consequently, they have to become what might be called “investor literate.” That kind of knowledge allows them to make prudent choices when there are fluctuations (or the lack of them) in returns on their investments (ROI).
3. Acquire Underpriced Assets
A third strategy of how to save money for retirement is acquiring underpriced assets that economically savvy experts predict could appreciate in value. Those might include equities, commercial real estate, race horses, or virtual currencies such as bitcoin. Obviously, this involves risk.
Before the so-called residential real estate collapse, the prudent had carefully shopped for homes that were below market rates. They counted on this asset to fund their retirement. Instead, the market value too often plunged beneath even the low amount of the mortgage balance.
4. Diversify Income Generation
The lesson learned in that and all retirement savings approaches is the fourth strategy. That is this: It is imperative in a volatile global economy continually disrupted by technology to diversify how income is generated, how it is invested, and how course correction is performed. In the most basic sense, no one can “depend” on a job or even a lucrative niche in operating one’s own business. Instead, there must be awareness of shifts in management priorities, what skills are marketable, and compensation levels over all trends.
In short, how to save money for retirement is not a passive activity. The adventure involved in that, though, can bring the bonus experience of being able to stop working when one chooses, and on one’s own terms.