An hourglass figure may be desirable, but it’s not a good look for an economy.
“The middle is getting squeezed and people are moving up and moving down but staying in the middle is pretty difficult,” said David Kelly, an economist for JPMorgan Funds.
And this “hourglass economy” is taken its toll on savings accounts.
About 49 percent of Americans say they are unable to contribute to a retirement plan, according to a survey conducted earlier this year by LIMRA, a financial services industry trade association.
But saving for retirement is not something to be ignored. You have to start somewhere. Here are four tips for those of you struggling to put money away for your golden years.
1. Save before you spend
If you're not doing it now, you have to find a way to save and the best thing you can do to help yourself is automate. If the money lands in your checking account and you see it on your ATM receipt, it's too easy to find some "need" to spend it on. Arrange for it to be swiped out of your checking account before that happen and put into an IRA or other savings account.
2. Prioritize your savings
- Emergency fund first: If you've heard it once, you've heard it a hundred times. You need at least six months of living expenses - in cash - just in case. When you first start to have money to put away, it's important to fill up this bucket first. That way, you have cash to fall back on when the roof leaks or the computer breaks and you don't have to reach for the credit cards. Put this money in a boring old savings account, where you may not earn much interest but you can get at it if you need it.
- Matchedcontributions: After you satisfy your emergency needs, you can start putting away money for other, longer-term goals. Any money that gets matched comes next on the list for the obvious reasons - the returns are big, instantaneous and guaranteed. You're most likely to get your hands on these through your retirement plan at work, like a 401(k). Another place you may see matching dollars is your state's 529 plan, which is a retirement savings tool. It's rare, but not unheard of, particularly for lower income residents: Colorado's Direct Portfolio College Savings Plan offers a dollar-for-dollar match of up to $500 for lower and middle income residents. Kansas has a similar program, matching contributions above $100 and up to $600 per year.
- Tax-advantaged accounts: Once you've maxed out your ability to grab matching dollars, saving in tax-advantaged accounts is your next best move. Some of these offer you a tax break for putting the money in - as with 401(k)s, traditional IRAs, some 529s. All let the money grow tax-deferred while it's in the account. And the Roth IRA, though you are taxed on contributions, lets the money grow tax free forever and doesn't require you to start taking it out at a particular time. All are great advantages when it comes to growing your savings.
- Discretionary accounts: So what happens when you've funded your emergency cushion, grabbed all of your matching dollars, maxed out your ability to contribute to retirement and other tax-advantaged accounts, and still have money to save? By all means, save! If we're talking about money for a short-term goal, put it into an account where you won't lose it (that means no stocks) and you can access it when you need it (no long-term CDs). If it's for retirement or something else further down the road, put it in a brokerage accounts and buy some mutual funds that give you the opportunity for growth.
3. Set a realistic savings percentage per month
Start by saving 2 percent per month. It will force you to cutout the small things that you probably won't notice. Avoid a "crash diet" savings approach (setting unrealistic goals just like some people do with food) in order to guarantee long-term savings success. Almost ANYONE can save 2 percent.
In the long-term, aim to save 10 percent to 15 percent per month, but you can't start there. Start small and up it as you go along. Something is better than nothing at all.
4. Save when you can
When you find yourself with some extra cash, don't go out on a shopping spree. Resist the urge to spend it all. You never know what the future may bring.