Money Management

When it comes to future planning, there’s nothing I’m more focused on than retirement. Here’s why I’m not taking any chances with my golden years. 

When I set financial goals, there is always one that is at the top of my list: Saving for retirement. I’ve always put this first above all other objectives such as saving for a house or even repaying loans early.

There are a few simple reasons why I have committed myself to investing money regularly in my brokerage account for retirement, even if that sometimes means there are other things I have to put off or am unable to do because I’m so focused on saving for my later years.

1. Social Security alone won’t cut it

The biggest reason why I’m focused on saving for retirement is because I know I need money saved to be able to support myself.

The reality is, most people — myself included — are going to have two sources of income in retirement. The first is Social Security benefits, which are designed to replace about 40% of pre-retirement income. The second is savings, which I will need to provide all the rest of my money. I’m not going to have an employer pension and those are rare, so most people won’t have one either.

Most experts advise replacing a minimum of around 70% to 80% of pre-retirement earnings. I’m aiming for more than that since I want to travel. I have to save to ensure I have enough money to provide the rest of the funds I need that won’t come from Social Security.

2. You have few options if you get to retirement with too little

The second big reason I’m really focused on retirement savings as my top financial goal is because I know there aren’t many good options if I don’t have money saved.

I can work longer if I face a shortfall. But, some studies have shown as many as 40% of retirees were forced to leave the workforce before they were ready. Health issues, lack of opportunity, family issues, or a host of other problems could mean that working in retirement isn’t really an option.

Other solutions like making a drastic change in lifestyle and living on much less, also don’t seem very attractive to me.

If you get to retirement, can’t work any more, and don’t have enough savings, there aren’t good solutions. The time to deal with this problem is before it happens.

3. Healthcare cost could be expensive for retirees

Finally, the last reason why I’m so focused on saving for retirement is because I know healthcare is likely to eat up a huge chunk of my monthly budget.

According to the Fidelity Retiree Health Care Cost Estimate, the average 65-year-old retired couple in 2023 may need as much as $315,000 saved to cover out-of-pocket care expenses beyond what Medicare pays for. That’s a fortune.

While I hope to be healthy in retirement, I don’t want to find myself wondering whether I can afford my prescription or go to the doctor if I need to. So, I’m prioritizing saving enough for retirement to have a dedicated healthcare fund.

How to make retirement your top financial goal

The reasons I’ve made retirement my top goal are the same reasons why everyone should do the same. Like me, everyone else is going to have to supplement Social Security and be ready to cover healthcare costs because there aren’t any other great options (short of winning the lottery, which might be nice but probably isn’t the best plan).

So, how can you do that?

First, figure out how much retirement savings you’ll need. A simple rule of thumb is to save 10 times your final salary. Next, use a calculator from Investor.gov to figure out how much to save each month to hit your target number. The amount will be based on your goal, your age when you start investing, and projected returns (assuming around 10% is reasonable when using the calculator)Automate your investment of that amount. Treat it as a must-pay bill. You can set up automatic transfers to your workplace 401(k) by filling out paperwork with HR or open an IRA at a brokerage firm and set up automatic transfers to it. Do not let yourself miss a month, even if that means cutting other things. Develop a solid strategy to invest your money. This could be as simple as putting the money into an S&P 500 index fund that tracks the performance of the S&P 500 (a financial index of 500 of the largest U.S. companies).

By taking these steps to prioritize retirement savings, ideally you can have the money you need to avoid a retirement with too little money and no good options.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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As my income has gone up, I’ve been happy to increase my spending on a few key purchases. Keep reading to learn how lifestyle creep can be good. 

Over the past few years, my income has increased as I’ve grown my small business.

Many financial experts warn that as you earn more, you’ll spend more so you may not really find yourself improving your long-term financial situation that much.

Spending increases that tend to happen with income increases are often referred to as lifestyle creep. And, it is undoubtedly true that it can be bad to start spending more lavishly because you have more money rather than investing in a brokerage account or other wealth-building assets.

But, I don’t believe lifestyle creep is necessarily bad in all situations. In fact, there are three things I am absolutely delighted to spend more money on now that I’m earning enough to do it.

1. Household help

Hiring someone to clean my house was one of the first things I did when I had disposable cash. And as I’ve begun to earn more, I’ve added hours for my housekeeper. She now comes three mornings a week.

This may seem excessive, but my housekeeper is the world’s most wonderful person who makes my life easier in a thousand ways. She watches my kids while I walk my dog, she turns my car around for me every morning so I can get down my steep driveway easily (I’m not a great driver), and she waters my plants when I travel — in addition to doing all our dishes, laundry, and routine cleaning.

The reality is, hiring help is a great thing to do with your money. You’re buying back your time, which surveys have shown makes a meaningful difference in promoting happiness. You’re also eliminating hassle from your life. Writing my check to my housekeeper each week makes me smile every time because I think of all the extra hours of my life I’ve bought back by doing so.

If you’ve increased your earnings and are considering what to do with some of your extra cash, consider the tasks you really dislike. Whether it’s cleaning, grocery shopping, mowing lawns, or something else, seriously consider whether you should pay someone to do it for you.

2. Vacations

Vacations are another thing I’ve been delighted to spend more on. I take more vacations and costlier trips because I can. I’ve made great memories by increasing my vacation spending and I’ve had some amazing once-in-a-lifetime experiences that will stay with me forever.

Studies have also shown that people end up happier when they buy experiences, not things. You get to enjoy the planning process, enjoy the actual event, and enjoy the memories of it, so you get a triple bang for your buck.

3. Expensive linens

Finally, the last thing I’ve increased my spending on is bed linens. I used to buy whatever sheets and blankets I happened to find on sale. Now, I have a down comforter that costs more than I care to admit as well as linen sheets that are absolute heaven to sleep on.

This may seem silly too, but think about how much of your life you spend in your bed and ask why you wouldn’t want to spend some of your money to make that time more pleasurable.

Be reasonable with your lifestyle creep and you’ll end up better off

Now, my list of things I spend more money on as my income increases may seem strange to you — and you may have many other things you’d rather spend on. And there’s nothing wrong with that.

If you work hard and increase your income, you deserve to get some extra pleasure by doing so. That’s the point of money. You don’t want to let lifestyle creep eat up every penny of your extra earnings, however. Make sure you’re doing all the right things first, like saving for emergencies and saving for retirement.

But once you have those basics taken care of, take the time to consider what splurges will add the most value to your life — then indulge in them if you can afford to. Do so without guilt, because as long as you’re taking care of the essentials first, your money is meant to improve your life.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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