A lot of people say that us girls aren’t really prepping well for retirement.
From what I’ve seen, about 63% of everyone at work thinks rising living costs mean they might never retire.
Even though we try to save up whenever we can, it’s super easy to get bummed out by how little progress we see.
Seeing that your private pension is only going to give you $13,000 a year doesn’t exactly make you dream of a comfy retirement.
But guess what? You might not need as much money in retirement as you think.
The Tax Stuff
Taxes are a big deal no matter how old you are, but they get extra important when you retire.
Here’s the thing: you don’t pay National Insurance or Social Security on your pension income. This means more of your money stays with you, not the taxman.
And when it comes to Income Tax, some people end up paying less once they stop working. You might go from a higher tax rate to a basic one.
But be careful—how you take your pension can change how much tax you owe. Take too much at once, and you might jump into a higher tax band and owe more. Spreading out your withdrawals can help you avoid this.
Your Spending Will Change
Your expenses in retirement are probably going to be different from what they are now.
By then, your mortgage might be paid off, and you won’t be spending as much on your kids once they’re grown up and moved out.
You also won’t have to pay for commuting, work clothes, or lunches. So even if your salary is lower in retirement, your disposable income might be about the same.
Some girls might find they have the same spending money after they retire, even if their overall income is less. It really depends on what your current expenses are and how they’ll change.
Don’t Forget About Welfare and Annuities
Welfare benefits are going to be a big part of our income when we retire.
We can’t predict exactly how much we’ll get, but the ‘triple lock’ system has helped it keep up with inflation. Just know that future increases might not be as generous.
How Much Do You Need to Save?
A good target for a single person is about $30,000 a year in retirement, or $45,000 for a couple.
So, how much do you need to save each month to reach that?
It depends on a few key things. Starting your pension early—even with small amounts—is crucial. The longer your money is invested, the more it grows.
How you invest your money also matters. Stocks and shares are popular, but managed funds, where someone picks the investments for you, can either do really well or not so great. Don’t forget about the fees that can cut into your returns.
Here’s a quick guide on how much to save each month based on when you start your pension, aiming for a retirement age of 66 with an income of $30,000 (including social security).
- Start at 20: Save $350 a month
- Start at 25: Save $400 a month
- Start at 30: Save $450 a month
- Start at 35: Save $550 a month
- Start at 40: Save $670 a month
- Start at 45: Save $850 a month
Starting Early Makes a Huge Difference
Getting started saving early on makes a hell of a difference to your eventual position.
These calculations include retirement contributions, not counting on anything from your employer. However, workplace pensions are a thing now, so lots of employees get a nice boost from their bosses. If you’re in your workplace scheme, you can lower those numbers and still hit $27,000 a year when you retire.
…and every little bit adds up!
You might not need as much as you thought for retirement, but don’t use that as an excuse to save less. A lot can change between now and then, and every bit you save now will help your future self.
Think about it—how many old people do you know who wish they had saved less for their golden years?
What should I do if I can’t save as much as recommended each month?
Cut Non-Essential Expenses
You love grabbing a coffee from your favorite café every morning, which costs about $5, yeah?
Over a month, that adds up to $150. After reviewing your budget, you decide to cut back and make coffee at home instead, saving around $100 a month. You redirect this $100 into your retirement fund. Over time, this small change not only helps you save more but also makes you more mindful of other non-essential expenses, like dining out or impulse shopping, which you gradually reduce as well.
OR
You notice that you tend to do a lot of online shopping when you’re feeling down, often spending around $150 a month on things you don’t really need. After recognizing this pattern, you decide to set a monthly budget for online shopping and stick to it. You limit yourself to $50 a month, saving $100. You then set up a recurring transfer of this $100 into your retirement account. To help manage your emotions, you start exploring other activities that make you feel good, like going for walks, reading, or calling a friend. Over time, you find that not only are you saving more for retirement, but you’re also finding healthier ways to cope with your feelings, leading to a more balanced and fulfilling life.
Automate Your Savings
You set up an automatic transfer of $200 from your checking account to your retirement account every payday. This way, you don’t have to remember to make the transfer, and the money is saved before you even have a chance to spend it. Over the months, you notice that you don’t miss the $200 because you’ve adjusted your spending habits accordingly. This consistent saving helps you build a substantial retirement fund without the stress of manual transfers.
For instance, say you’ve recently started a small online boutique selling handmade jewelry. While the business is still growing, you decide to set up an automatic transfer of a portion of your monthly profits into a retirement account. You start with $10 a month, knowing that every bit counts. Because this transfer happens automatically, you don’t have to think about it, and it becomes a regular part of your business expenses. As your boutique gains more customers and your profits increase, you gradually raise the amount you save each month. Over time, this consistent saving helps you build a substantial retirement fund, giving you peace of mind and allowing you to focus on growing your business without the stress of manual transfers.
Take Advantage of Tax Benefits
You decide to contribute to a 401(k) plan offered by your employer. By contributing $100 a month, you reduce your taxable income, which means you owe less in taxes each year. This tax benefit effectively increases your savings because you’re keeping more of your money. Additionally, your employer matches a portion of your contributions, giving your retirement savings an extra boost. Over time, these tax benefits and employer contributions significantly enhance your retirement fund, making your future more secure.
And then you open a Roth IRA and start contributing $100 a month. Although these contributions are made with after-tax dollars, you know that your withdrawals in retirement will be tax-free. This gives you peace of mind, knowing that your future self won’t have to worry about taxes on this portion of your retirement income. Additionally, the growth in your Roth IRA is tax-free, which means more of your money stays invested and grows over time, enhancing your retirement savings.