Morgan Stanley
  • Wealth Management
  • Sep 7, 2021

How to Make Room in Your Budget to Save More for Retirement

Saving enough for a comfortable retirement may be one of the most significant financial challenges you'll face in life, but it can be much more manageable if you spread out the effort.

Modern life is expensive. In addition to basic bills, healthcare costs and the occasional well-deserved splurge, many of us are chipping away at significant credit card and student loan debts. Americans’ average credit card debt was $6,741 as of March 2021, for a combined national total of $398.67 billion.1 And about 45 million Americans have a combined $1.7 trillion in outstanding student loan debt.2

With so many financial demands in the present, it can be tough to imagine finding any wiggle room to save for the future. In fact, recent reports show that a quarter of Americans have no retirement savings at all—and those who are saving may not have enough to meet their needs in retirement.3 For that reason, it’s important to structure your budget in a way that covers your bases now while dedicating sufficient resources for tomorrow.

How Much Do You Need to Save?

Depending on how far along you are in your career, retirement may seem more like an abstract concept than a concrete next phase in your life.

Generally speaking, if you start saving for retirement in your 20s, setting aside and investing about 10-15% of your salary each year can help set you on the right path. But if you wait until your 30s, 40s or 50s, you’ll have to save much more to cover the gaps. There are a number of online calculators available to help you determine an appropriate savings rate based on your current savings and anticipated time horizon until retirement.

Simply put, when it comes to saving for retirement, time really is money. Thanks to the principle of compounding, invested money has the opportunity to earn interest on interest and investment gains on investment gains. So the benefits of starting early are twofold: you’ll potentially have a larger account balance come retirement, and you may not feel as much of a dent in your paycheck along the way.

How Can You Find Room in Your Budget?

You may want to look closely at your income and expenses, and find places where you can free up dollars specifically for retirement. While this may seem easier said than done, there are ways to make it happen.

A first step might be to take a close look at where your money is going each month. You might find success in aiming to meet the 50/30/20 Rule: put 50 percent of your monthly budget towards needs, 30 percent towards wants, and the remaining 20 towards savings and investments.

If your wants column is taking up a disproportionate amount of room in the equation, think about realistic ways to pull back without feeling like you’re sacrificing your quality of life. If there are subscriptions that you’ve had on auto-pay for ages but aren’t actually using, you may want to cancel them and put that extra cash towards your retirement account. If you use rideshare services regularly, try replacing just one ride a week with public transportation. And cut back on excess spending by instituting a 24-hour waiting period for non-essentials, like new clothes and accessories, gadgets and beauty products. You may just find that these items have lost their appeal once you’ve had some time to think about them. Saving even $100 a month using these methods can really add up over time.

If pressing needs, not wants, are keeping you from saving more for the future, there are ways to get those expenses down too. Consolidating credit card debt onto a lower-interest card may be a good way to reduce monthly payments. Student loan refinancing platforms can help you identify offers to get educational debt payments down too. And when it comes to utilities like Internet and phone service, switching providers may allow you to take advantage of new customer promotions and discounts.

Another method for socking away more for retirement is to take advantage of auto-features that may be part of your workplace plan. You may be able to set up auto-increases so that your contribution percentage rises by a point or two each year, ideally coinciding with annual raises and bonuses. With the money flowing into your account automatically, you may not even feel the impact in your paycheck.

The Bottom Line

Saving enough for a comfortable retirement may be one of the most significant financial challenges you’ll face in life, but it can be much more manageable if you spread out the effort over the course of your career. Balancing your present and future financial obligations is a tricky task, but taking a detailed look at where your money is going each month can help you pinpoint areas where you can reasonably cut back now to put away money for your golden years.