Outside the Box: How to save double your salary (or more) for retirement by age 35

You may have recently seen the recommendation from retirement experts that you should save two times (2X) your annual salary by age 35, and if you wondered — like a lot of people on Twitter did — how that’s even possible, let’s break it down.

I recently retired early at age 38, but only 10 years ago, at age 28, I had a net worth of essentially zero. If you’d told me then that by 35 I’d have many times my income saved, I wouldn’t have believed you. But as the growing FIRE (financial independence retire early) movement is showing us, that level of saving is possible for many people if you make it your focus.

Our culture is not good at teaching people to save money, and with some of the roadblocks out there like higher-than-ever student loan debt, rising home prices and decreasing pay and benefits in many fields, it’s easy to believe that you can’t save money. But if you think of saving as a skill you learn, it’s easier to decide for yourself that you’re going to learn to do it, even when it’s hard — and to ask for help.

And here’s some of that help — totally doable ways you can stay on target saving for retirement:

Take advantage of 401(k) employer matches and escalations

If you have a job that offers a 401(k) with employer match, you have a huge opportunity to save quickly for retirement. The most common 401(k) scheme has a 3% employer match when the employee contributes 6%. In an average scenario, starting to save with a salary of $33,500 at age 25, increasing 3% a year to $45,000 at age 35, with modest 5% annual market returns, you’d have $40,424 saved in your 401(k) by age 35 if you put away the 6% required to get the full company match, amounting to $84 per paycheck. That already puts you at 90% of your annual salary saved by age 35.

You can get even closer to the 2X goal if you take advantage of the escalation option most plans offer, to increase your contributions by 1 percentage point each year to coincide with pay increases, so you don’t even notice the increased withholding. In this scenario, starting with a 6% contribution at age 25 that increases one point each year, you’d have $64,091 saved by age 35, nearly 1.5X your income, without ever feeling a real pinch.

If you want to get really ambitious and increase your 401(k) withholdings by 2 percentage points each year, still less than the 3% average wage increase, allowing you to save without decreasing your standard of living, you’d have $87,758 saved by age 35, 1.95X your annual income, putting you right on target for where experts say you should be.

If you don’t have a 401(k) option or don’t get an employer match, you can still save for yourself in an individual retirement account (IRA), individual 401(k) or Roth IRA, but under these scenarios, you’d have $12,872 less saved at 35 without an employer match.

If you’re already in your 30s or 40s and need to catch up, start by saving at least as much right away as you must to get the employer 401(k) match, and then every month or so, log into your plan and increase your withholding by a percentage point until you really feel it in your spending. We get used to spending what we earn, and if that money is just not there in your account to be spent, most of us will find ways to adjust.

Reject ‘normal’ expenses

Many of our habits are dictated by those around us, and we may feel pressure to spend money on restaurants or trips, for example, just because our friends do. Not to mention the “keeping up with the Joneses” trap that so many of us fall into, buying things to portray an image instead of because those things truly make us happier. Get in the habit of reminding yourself that just because the average wedding costs $35,000 doesn’t mean you have to spend that to get married. Just because your friends get together for meals or travel that cost hundreds of dollars doesn’t mean that’s the only way to see them. A huge number of millennials have already rejected the “normal” expense of paying for cable TV and cut the cord, so extend that thinking to all of your spending, and chances are good that you’ll find additional money to save.

Don’t wait until debt is gone to save for retirement

While it’s no secret that millennials are especially hard-hit by student debt, a full 80% of Americans are in debt, a figure that varies minimally between generations. With debt as a fact of life for most of us, don’t let it hold you back from saving while you’re paying it off. At minimum, aim to get the full employer match on your 401(k), if you have that option, while you’re paying off your highest interest debt, and as your income increases, dedicate half of each raise to increasing your debt repayment and the other half to retirement savings.

Rely on automation, not willpower

As you earn more, it’s tempting to spend more, but if you can save that money instead, you’ll be amazed how quickly your savings will grow. Have your HR department split your paycheck so part of it goes automatically into a savings account where you’ll be less likely to spend it, and increase the amount each year as your pay goes up. You’ll save hundreds or even thousands of dollars a year without thinking about it. To level up that automation even more, use an app like Qapital, Acorns or Digit, which round up your purchases to the next dollar and automatically save the difference, amounting to hundreds of dollars each year without you ever noticing. Many banks offer this service on checking accounts as well.

Read: The best apps to help boost your savings

Manage uneven cash flow to save

If you earn freelance or gig income and don’t have a regular paycheck, start by tracking your income so you know exactly how much you earn. Then create a budget such as a 50/30/20 plan, in which you spend 50% or less of your income on essentials, spend 30% or less on wanted but not needed expenses and save 20% or more. After building up an emergency fund, create a habit of automatically saving 20% of each payment you receive in your IRA or Roth IRA, and watch your retirement savings grow.

Tanja Hester is the author of “Work Optional: The Non-Pennypinching Guide to Early Retirement” (coming March 2019), creator of the Our Next Life early retirement blog, co-host of The Fairer Cents podcast and a frequent MarketWatch contributor.

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