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How Much is Your Lifestyle Costing You?

Is your lifestyle costing you big savings? If you think you need a large income to have a large retirement savings account, think again: Simple changes in how you spend may help you pocket more savings than you might expect—and you probably won't even miss the money.

Having a six-figure (or more) retirement fund might be more within reach than you would imagine. So says Douglas Peete, founder of Douglas R. Peete & Associates, a Kansas City-based independent financial services firm.

Identify what's holding you back

Many individuals believe they need bigger incomes in order to save more. But regardless of income level or age, there are plenty of excuses that individuals use for not saving.

  • Young adults might think: "There's no way I could save now. I'm just starting out. I'd rather dress well and make a good impression on my bosses. Besides, I have plenty of time to save."
  • 30- to 40-something adults might rationalize this way: "We just bought a house and are raising a family—there's just no way we can save now. When I get that management position, I'll be able to save more."
  • Middle age adults may think: "I wish we could save now, but we've got kids heading off to college soon. That's got to be our savings priority, right?"
  • Pre-retirees might be getting anxious: "We've got to save more—we'll be retired in just ten years! But where would we cut back on our lifestyle so we could afford to save?"

The bottom line is that no matter what your age, you should never think it's too early (or too late) to save more for retirement. Here are some ideas to help trim your spending so you can save more:

Save first; spend what's left.

"If you spend first, there might be nothing left to save," Peete says. Take Peete himself: In his 20s, he made a commitment to save 10 percent of his salary and built his budget around the money that was left over.

Make funding your retirement a priority and maximize contributions if possible. The good news? Individuals who take this approach and pay themselves first often don't see a big impact in their take-home pay.

Eat in.

Each time you make dinner rather than dine out you're likely to save $20 to $50—especially if you have a big family. Brown-bagging your lunch can free up another $25 or more a week.

Cut your phone bill.

Danny Kofke of Hoschton, Georgia, saves $30 a month by getting only basic service for his landline phone, skipping add-ons like caller ID and voice mail. He saved another $30 a month by switching his $50-a-month cell phone in favor of an inexpensive prepaid plan. If he contributes an additional $60 each month into his retirement account and his organization contributes a 50 percent match, there is the potential to have an additional $135,000 in 30 years.[1]

Buy in bulk.

Diane Pederson of Minneapolis buys in-season vegetables in bulk from her farmer's market, then freezes or cans them. This move could save you $150 a year, and you could contribute that amount to your organization's retirement plan. If you get a 50 percent match from your organization and your contribution grows at 8 percent annually for 25 years, you may have an extra $18,000 in your retirement account.[2]

Watch the little things.

Saving even $5 a week may impact your retirement account over time. So check out some books and DVDs at your library. Alternate renting movies with going to the theater. Use coupons. And when you eat out, skip dessert.

Take the next step toward a better retirement.

Increase your retirement plan contributions today.

Fast Fact: In 2010, the U.S. once again led the world with the highest number of millionaires at 3.1 million, up from 2.86 million in 2009, according to the annual World Wealth Report. In North America, 63 percent are men and 37 percent are women.

 

[1]
$135,000 assumes $90 per month (Danny's contribution of $60 plus 50 percent employer match of $30) contributed at an 8 percent annual rate of return over 30 years. The assumed rates of return is hypothetical and does not guarantee any future returns nor represent the returns of any particular investment. Amounts shown do not reflect the impact of taxes on pre-tax distributions.
[2]
$18,000 assumes $225 per year (Diane's contribution of $150 plus 50 percent employer match of $75) contributed at an 8 percent annual rate of return over 25 years. The assumed rates of return is hypothetical and does not guarantee any future returns nor represent the returns of any particular investment. Amounts shown do not reflect the impact of taxes on pre-tax distributions.

Douglas Peete, and Douglas R. Peete & Associates are not affiliated with the Principal Financial Group or any of its member companies.

Insurance products and plan administrative services are provided by Principal Life Insurance Company a member of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.

t1110060c15 [From Winter 2011 Plan Ahead. Get Ahead.]

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