Printable Page |  Email this Page

Budgeting To Help Rebuild Retirement Savings

Scrutinizing day-to-day spending can be one of the best ways to help rebuild retirement savings. The concept is deceptively simple yet can be powerful:

1. Find more ways to cut expenses
2. Consider using the extra savings to boost contributions to your organization's retirement plan and/or Individual Retirement Accounts (IRAs)

Most employees who participate in their organizations' retirement plans watched the value of account balances decline last year. As the economy rebounds, many are now beginning to see account balances recover some of that market value decline.

But you can't count on the market or the value of your home to secure your retirement. You may need to consider saving more for retirement too. Here are some tips and ideas to get you started.

Track your spending for one month to get a clear picture

"People view budgets as a dirty word, but budgets are good," says Ken McDonnell, program director of The American Savings Education Council. You may want to get started by tracking every penny you spend for one month. Use old-fashioned pen and paper or keep an electronic tally on a smart phone.

"This can be labor intensive, but it's a worthwhile exercise," says McDonnell. "Most people aren't aware of how much they're really spending. Five dollars here, four dollars there – it can add up to $100 a week."

A survey commissioned by Visa USA backs up that assertion: 48 percent of participants said they lost track of $45 a week to cash purchases they couldn't accurately remember – adding up to a whopping $2,340 a year.

Here are 5 ideas to help trim expenses:

Once you know where your money is being spent (or overspent), you can start to trim expenses. Some excellent candidates for price-chopping:

1. Challenge your family to help lower utility bills. You know you should adjust the thermostat and turn off lights, but how can you get your family – especially kids – on board?
   
   Many utility companies provide a graph of your consumption. "It's the greatest thing you get from your utility bill," says McDonnell. How much have you used this month versus last? Challenge your family to lower the bar, literally, on the next bill's graph.
2. Avoid bank fees. Pay attention to avoidable charges such as overdraft or ATM fees. You could be throwing away hundreds of dollars a year.
3. See if you can lower your mortgage payments. With rates hovering at historic lows, you may be able to score a better deal by refinancing your home.
4. Consider reducing car expenses. Think about whether you can get by with one less vehicle in your household. You'll save on the car loan, insurance, gas and maintenance.
5. Avoid impulse buying. "When you go shopping, have an idea of what you want to buy and how much it's going to cost, then go get it and leave," McDonnell says. "Don't pick up anything else."

Put your retirement savings to work

Budgeting is the first step to finding ways to save, but using those savings wisely is just as important. You could start by contributing some of those savings into your organization's retirement plan or your Roth IRA.

Want to see some examples? Check out these online resources.

• Find out what it's worth to reduce your spending. This calculator shows how much retirement savings could grow in 10 years and by the time you retire if you took the money you saved by reducing expenses and invested it.

^[1]

About the study: New research by the nonpartisan Employee Benefits Research Institute (EBRI) recently examined how long it might take for 401(k) accounts to recover what was lost in 2008; this data is presented in our estimator online. Source: EBRI 2009 – Excerpt from February 2009 EBRI Issue Brief, ebri.org.