Retire Long Before FRA With This Simple, Time-Tested Method — How $500 a Month Can Help You Reach Your Financial Goals
Americans born in 1960 or later won’t reach Full Retirement Age (FRA) — the point at which they can collect full retirement benefits from Social Security — until age 67. For every year that you delay retirement up to age 70, you’ll gain an additional 8% onto your Social Security check.
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But what if you didn’t have to rely on maximizing your Social Security benefits to enjoy a comfortable retirement? In the United States, roughly 50% of retirees have relied on Social Security for at least half of their income, according to the latest data from SSA.gov. Between 21% and 25% rely on Social Security for 90% of their retirement income.
Alarmingly, 75% of people age 50 and older worry that Social Security will run out of funds in their lifetime, either before or during their retirement, according to CNBC.com. With this in mind, it’s more important than ever to put saving for retirement first.
Focus on How Fast Your Money Can Grow
It can be hard, however, to save money with the rising cost of living. However, if you take a time-tested tip from financial experts, you may be able to set aside $500 a month or more toward your retirement. First, think about how hard that money can work for you if you don’t spend it.
If you put that money in an IRA or 401(k), with an average return of 7%, after 40 years you’d have more than $1.3 million. If you max out your 401(k) to the IRS limit of $23,000 in 2024, and deposit $1,915 per month, for 30 years, at 7% returns, you’d have $2,368,882 saved, based on the compound interest calculator at Investor.gov.
But how can you commit to saving money when so many things, from your mortgage to groceries and other living expenses, demand your paycheck?
Pay Yourself First
Take a page from the book of George Samuel Clason, American entrepreneur and author of the tiny finance tome, “The Richest Man in Babylon.” Published in 1926, the book uses a parable to share Clason’s simple financial advice: Pay yourself first.
Repeated and applied today by experts like Jaspreet Singh, Suze Orman and Dave Ramsey, Clason’s advice also works for regular people who previously struggled to get by.
In a recent Business Insider article, Chonce Maddox shared how she committed to putting $500 per month into an IRA, making automatic deposits into a high-yield savings account and putting money into her son’s college fund.
“I’ve spent too many years thinking I would build my emergency fund or put money toward retirement at the end of the month if money was leftover. Most of the time, there wasn’t anything left over,” she wrote.
After watching her father-in-law retire at 63 using the time-tested tactic of paying yourself first, Maddox changed the way she budgets household expenses. “At first, it was a little scary to transfer a huge chunk of money to savings and investments first thing, but it works much better for me than making saving an afterthought,” she wrote. “Before we started paying ourselves first, there was rarely anything left over to save.”
When extra cash is not available, however, because it’s tucked into an investment or an online account, in most cases you can make ends meet with what you have left. In her article, Maddox acknowledged that it’s easier to pay yourself first if you live below your means and don’t have high interest debt to pay off.
The amount you decide to set aside may be small at first, but it can grow as you pay down debt or cut expenses.
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While Clason, back in 1926, recommended saving at least 10% of your income, every little bit can make a big difference in your quality-of-life years down the road.
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This article originally appeared on GOBankingRates.com: Retire Long Before FRA With This Simple, Time-Tested Method — How $500 a Month Can Help You Reach Your Financial Goals
