Every year, millions of American workers refuse a cash gift of nearly $200,000. That's the sum the average employee—who starts saving at age 31—would make if he or she started saving just eight years earlier, according to a report from Nationwide Insurance. Workers have plenty of reasons for delaying retirement savings, but with that much money at stake, it's worth taking a look at what obstacles stand in the way between you and financial security and how you can overcome them to enjoy retirement. .
What's stopping you from saving
Similar to eating vegetables and exercising more, saving for retirement is one habit everybody knows they need to practice but few do. While it's easy for financial advisors (and personal finance writers) to wag their fingers at employees who don't prioritize retirement savings, the myriad of daily financial pressures on Americans makes saving understandably difficult.
According to the report, 61% of employees name debt as the main culprit preventing them from saving more for retirement. The average American household carries almost $6,000 in credit card debt alone, and almost 45 million Americans have an average of $32,731 in student loan debt. Combined with the rising costs of both mortgages and rent (not to mention childcare and other necessary expenses) and it can seem the world is conspiring to squeeze every last cent from your paycheck, making planning for retirement savings an unaffordable luxury.
Why retirement savings is worth the effort
Despite how painful it can feel to set aside some of your paycheck for retirement savings, it makes a dramatic difference in how much you'll eventual collect when it's time to drop out of the rat race. According to Nationwide's estimates, an employee at 23 who starts investing $100 from every paycheck in an account with a 6% yearly return on investment can expect to reap more than $430,000 by the time they hit 65 (when, barring some catastrophic national event, you can begin to collect Social Security). Those who wait until age 31 to start saving in a similar manner can only expect to collect around $257,000—a difference of more than $177,000.
Even with an incentive of close to $200,000, saving can still seem like a daunting task because cashing in on retirement savings is still decades away. Fortunately there are a few actions you can take that can help take some of the stress from losing a little of your paycheck in order to fund your future.
Make it automatic. One of the best things you can do to ensure you save for retirement is to take yourself out of the equation. If you're fortunate enough to work for an employer that offers a 401(k) or similar retirement savings fund, set it up so your money is automatically deducted from your paycheck. This way, you avoid agonizing when payday comes around whether to save or not.
Work on the debt. If you feel the amount of debt hanging over your head prevents you from saving as much as you should for retirement, then get a plan in place to pay off the debt. Whether you’re dealing with credit card or student loan debt, the most financially prudent path is to pay off the debt charging you the most interest first, because it hits your bottom line the hardest. However, there's something to be said for the psychological motivation of paying off a smaller debt to prove to yourself this isn't an impossible task. Whichever method works for you, make sure you stick with your plan.
Cut where you can. Nobody likes passing up a night out on the town or an Amazon order guaranteed to bring momentary happiness, but the prospect of flipping burgers as a senior is probably even less appealing. You don't have to live a life completely devoid of entertainment expenses (otherwise what's the point of any of this?), but often we can all cut back a little on our spending. Don't focus on complete abstinence; instead think about how you can reduce it.