Most would agree that saving enough for retirement is a challenging task, but retirement super savers make it look easy. These are the workers who are able to comfortably set aside large sums for their future each year while still covering their bills today.
It's not something everyone can pull off. There are three key criteria you must meet in order to achieve and maintain retirement super saver status.
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1. You have adequate emergency savings
Emergency savings might seem unrelated to retirement savings, but the connection becomes abundantly clear when an unexpected cost arises. When you have an emergency fund, you're able to pay the bill and continue with your retirement contributions as normal. Without emergency savings, you might have to reduce or halt your retirement contributions to cover the unplanned expense.
Adequate emergency savings enables you to consistently save for retirement, come what may. The general rule of thumb is to maintain at least three to six months' worth of living costs in a high-yield savings account where it'll be easily accessible. However, you might prefer to keep more money on hand, especially if you believe it would take you a long time to find a new job if you lost yours.
2. You don't have any high-interest debt
You don't have to pay off all your debts before saving for retirement. Mortgages, for example, generally have low interest rates, and it's to your advantage to pay yours off while saving for retirement. But that's not the case for high-interest debts like credit card debt or payday loans.
The interest charges on these debts could cost you more annually than you'll likely earn through your retirement account investments. So it makes sense to prioritize paying down these debts first before moving onto retirement savings.
You can approach this in several ways. Balance transfer cards are a popular solution for credit card debt. This gives you a 0% introductory APR period where your balance won't accrue any interest, making it easier to pay back what you owe. You could also try a personal loan for credit card or payday loan debt. This gives you regular monthly payments and an interest rate that's a little more manageable.
3. You can afford to save at least 10% of your annual income for retirement
The generally accepted definition of a retirement super saver is a person who saves at least 10% of their annual income for retirement each year. It's not an easy task for a lot of people, but careful budgeting and claiming any 401(k) match you're eligible for can help. Saving year-end bonuses or tax refunds is another strategy that can assist you in reaching super-saver status.
If you're not able to save 10% of your income right now, don't get discouraged. You may still be able to retire comfortably while saving less. It might take you a little longer to get the funds you need, but that's OK. Focus on saving what you're able to today and try to boost your retirement contributions whenever you get a raise or by 1% of your salary annually.
If you're already saving at least 10% of your income for retirement, that's great. But that might not always be enough depending on the type of lifestyle you want and how long your retirement lasts. Base your savings goal on your estimates of your retirement costs to ensure you're setting aside enough. Review your savings strategy at least annually to see if you need to adjust your target up or down to stay on track.
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