Key takeaways
- There are no loans for retirement, but there are ways you can keep funding your 403(b) plan or IRA despite debts and bills you may be facing.
- Thanks to compounding, $50 a week could turn into $100,000 in 20 years.
- Caring for others? Make yourself the top priority, which will put you in a better position to help others.
Your family has financial needs—whether it’s paying college tuition, replacing an older car, moving to a bigger home, subsidizing adult children, caring for elderly parents or just keeping the light glowing on the cable box—and you always put family first. But it happens to most everyone at some point: Family financial responsibilities proliferate like YouTube cat videos and before you know it, it feels like a lot more money is going out than coming in. At this point, you might be tempted to stop saving for retirement.
While it might seem noble or even unavoidable to sacrifice your own needs for your family’s, the one area where you still need to put yourself first is saving for retirement. Because while there are loans and funding options for college, homes, cars and other expenses, there are no loans for retirement. So how do you keep funding your 403(b) plan or IRA when debts and bills are staring you in the face?
Balance your balance sheet—then save
After paying all the bills each month, if your budget is the color of that proverbial red apple on your desk, you need to cut expenses. See this article for some tips on managing debt and setting up a spending plan that balances your balance sheet.
Once you get a few extra bucks over on the income side, you can siphon some of that into various savings buckets, including retirement. How much you put in the retirement bucket depends on a lot of factors, including short-term financial needs, and your age. The closer you are to retirement age, the less time you have to grow your money, so the more you need to allocate to retirement savings. But if you’re in the market for a larger home, you may have to direct a heavier stream towards that shorter-term goal. Just don’t shut off the retirement savings spigot completely.
Even saving a little can add up to a lot
If you’re 15 or more years from retirement, even saving a small amount in a tax-deferred 403(b) plan or IRA can add up over time thanks to the power of compounding. For example, saving just $50 a week at a 6% average annual return could grow to more than $100,000 over 20 years. It’s the savings consistency over time that makes this work.
When you save in a 403(b) retirement plan, your contributions are deducted from your paycheck and invested before you can spend the money. Built-in discipline! Even if you save in a traditional IRA, you can fund it with automatic transfers from your checking or savings account. And speaking of saving money, both types of retirement plans help you lower your current income taxes. Better to pay yourself than the IRS, right?
Manage your mortgage and other debts
We all have some debt. Credit card debt is generally “bad” because the costs are high due to inflated interest rates. A home mortgage is usually considered “good” debt because it’s an investment in a real estate asset that has the chance to grow in value. Also, mortgage interest payments are tax deductible. Interest rates are still relatively low, so make sure your mortgage loan rate is competitive. If it’s not, consider refinancing to lower your borrowing costs.
Having lots of debt can make you feel financially trapped. Prioritize paying down bad debt but leave enough in the pot to continue funding your retirement plan—even if it’s just a little bit.
Check the subsidies to adult children and elderly parents
According to a 2012 Pew Research study, 48% of middle-aged adults with grown children gave them financial support. About 21% of adults with a parent age 65 or older provided some financial support to the elderly parent. A National Alliance for Caregiving survey showed that over 60% of those providing care for others are saving less for retirement. Obviously, you’re not going to neglect your family. But keep yourself a priority, too.
Get professional help
A financial planner can provide some objective advice on allocating your money across debt service and long-term savings. Just like a personal trainer can keep you on an exercise routine when you’d rather eat that carton of ice cream, a financial planner can help you create a financial plan and then stick to it.
The bottom line
Your state pension provides a nice retirement foundation, so that can take some of the pressure off. But you’ll still need to accumulate savings to give yourself more financial security and flexibility in retirement. If current bills are overwhelming, work to lower your expenses and pay down debts. But continue to pay yourself first, by saving, even if it’s just a small amount. Retirement savings is not something that can be built at the last moment. It’s an investment in your future that takes time and discipline. You can do it!
