Don't Have Retirement Savings? Here's How to Start Building Some

There are seniors today who basically live on Social Security alone. But you can bet that many people in that boat are struggling financially.

The problem with Social Security is that it will only replace about 40% of your pre-retirement wages if you’re an average earner. But most people simply can’t afford a 60% pay cut.

It’s really hard to live on just 40% of the income you’re used to given the cost of things like food, transportation, healthcare, and housing. So if you want to avoid financial struggles in retirement, your best bet is to go in with some money saved up.

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Recent Ascent research, however, reveals that 28% of non-retired Americans don’t have any retirement savings. And if that’s the boat you’re in, it’s time to change course.

Now, the idea of building a retirement nest egg might seem daunting. But here’s how to go about it when you’re first starting out.

1. Create an emergency fund

Before you can think about funding a retirement plan, make sure you’re set with money in savings to cover an unplanned expense that might arise in the near term. If you sock away $5,000 in an IRA and then need $2,000 to repair your car, you’ll risk a penalty if you’re forced to take that money out of your IRA. So you’re better off setting yourself up with an emergency fund and then focusing on retirement savings.

2. Choose the right account

If you have access to a 401(k) plan through your job, you may be inclined to sign up for it and save for retirement that way. But if your employer’s plan comes with high fees and limited investment choices, and there’s no company match to enjoy, then you may want to consider an IRA instead.

With an IRA, you may find that you have more options for investing your nest egg. And that could lead to not only better results, but also lower fees along the way.

3. Automate a monthly contribution of some sort

Maybe after covering all of your essential bills, you can only afford to put $50 into an IRA or 401(k). That’s OK. The key is really to start somewhere, so if $50 is what you can afford right now, set up an automatic contribution in that amount that lands in your retirement plan every month.

If you’re saving in a 401(k), just tell your employer to deduct $50 on a monthly basis. With an IRA, you can arrange for a $50 automatic transfer out of your checking account. Putting the process on autopilot should help you better stay on track.

4. Increase your savings rate as your income allows

In time, your income might grow. And some of your expenses might shrink. If you’re currently making a $240 monthly student loan payment, for instance, but only have 10 payments left, your financial picture should look very different once that debt is gone.

That’s why it’s important to assess your income and bills regularly and ramp up on retirement plan contributions as your finances allow. The $50 monthly contribution you can swing today might be $100 or $150 by this time next year.

It’s not great to kick off retirement with no personal savings at all. If you haven’t begun to sock money away for retirement, start now. As long as you have some years in the workforce ahead of you, it’s not too late to set yourself up for a more financially solid future.

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