Saving for retirement on a small income
MANAGING DAY-TO-DAY financial obligations often requires a delicate balancing act, especially for those on a fixed income. For these persons, a large chunk of their income goes towards recurrent expenses (rent, food, utility bills), without which life would be uncomfortable, to say the least. The subject of retirement likely leaves many persons wondering: If I’m struggling to make ends meet now, how am I going to take care of my expenses when I’m older and no longer able to earn the same income?
Saving for retirement can be challenging when your pay cheques barely cover your day-to-day expenses; nevertheless, it is critical to create and regularly contribute to a retirement fund.
BE SMART – START WHILE YOU’RE YOUNG
We know the old adage ‘every mickle mek a muckle’, yet we apply this bit of wisdom to every major savings goal except retirement. Compounding smaller sums over a longer period of time is a major key to a sizeable retirement fund. If you’re barely able to make ends meet, don’t stress about how much money you are saving each month. What’s important is that you create a plan that allows you to take advantage of compound interest. So, just save, and save regularly!
MAKE A BUDGET, AND STICK TO IT
Making a plan for your money is an essential part of financial success. Best known as a budget, it shows how much money you have each month and where that money needs to go. This allows you to have more control over your money, so you can make informed choices that will benefit you in the future.
To make a budget, write down all your sources of monthly/weekly income. The next step is to total your monthly/weekly fixed expenses (car payments, rent, debt payments fall into this category), as well as your variable expenses (like groceries, utilities, clothing). When you’re making your budget, it’s also crucial that you include your retirement savings. By doing this, you’re making saving for retirement a priority, instead of an afterthought.
CUT BACK – BUT DON’T OVERDO IT
Once you’ve created your budget, go through it and check for opportunities where you can save money. There are many things we consider necessities, but when we really put it in perspective, those necessities are just extras that make life a bit more pleasant. Typical examples of areas we can save include: taking meals from home rather than buying fast food or prepared lunches (except when heavily subsidised); cutting the amount of credit for cell phones; eliminating expensive, unhealthy habits such as gambling and smoking. Also, if you own a vehicle, consider parking and taking public transport during off-peak times (it’s up to 80 per cent cheaper). Whatever money you save on trimming your expenses can be added to your retirement fund allocation.
In addition to cutting back on your expenses, it’s wise to look for ways to increase your income as well.
FINDING WAYS TO INCREASE YOUR INCOME
Once you’ve made some sensible cuts, focus on finding ways to increase your cash flow; earning more than you spend is a major key to saving. If you’re a security guard or practical nurse, try to get extra shifts (usually when co-workers can’t make it or call in sick). Or take on a second job during the weekends or evenings, if your schedule allows it.
Depending on your skill set, you can also look into starting a business or freelancing. When you come across a windfall – like a National Housing Trust refund, a bonus from work, or birthday money – put it towards your retirement savings. Even when you retire, a part-time job might be worth considering. The extra flow of income will pad your retirement account, and the social interactions can help retirees stay active and feel connected.
LIVE DEBT FREE
If you want to enjoy a comfortable retirement, you need to make debtfree living a priority. If you can start to reduce your high-interest credit card debt now, you’ll free up more money to put towards your retirement fund. Plus, if you can pay off your debts now, you won’t have to worry about shouldering debt payments in your retirement.
If your pay cheques are barely enough to take care of all your present expenses, the idea of saving for your future retirement may seem unreasonable. However, the reality is that the pension we receive from NIS upon retiring at 65 only provides a very meager income. You’ll need to make sure you top this up by saving enough so that you can maintain your current lifestyle once you leave the working world. Usually, this means you’ll need about 70-90 per cent of your current income in retirement. Any saving, even on a limited income, can make a big difference.