Stressed about your retirement prospects? You’re not alone. A recent report from the Employee Benefit Research Institute finds that only 15% of individuals who make less than $35,000 a year are very confident they’ll have enough money to live comfortably in retirement. One-third of workers in that income bracket are only somewhat confident in their retirement outlook, while 52% are not confident at all.
The good news is, you can change an uncertain financial future even with limited funds. Here’s how.
1. Review your spending
Your budget may be too tight for retirement saving, but it’s a good idea to review your spending anyway. Challenge yourself to find $5. Hint: Grocery coupons can help you reach that milestone. Then, look for another $5. Perhaps you can carpool to work and save on gas. Repeat the process until you’ve unlocked every dime available.
Image source: Getty Images.
This is not an easy thing to do, and you may have to make some tough choices. But longer term, you should be rewarded for your efforts and discipline. You’ll see how in the next step.
2. Invest your $5
If you have a 401(k), start making contributions in the amount you culled from coupon cutting, carpooling, and any other budget-trimming activities. If you don’t have a 401(k), it’s a good idea to open a Roth IRA — preferably one that supports fractional shares.
Fractional shares are pieces of stocks that you buy for proportionally lower prices. If you can’t afford a full share of Walmart (NYSE: WMT), for example, you could buy one-tenth of a share for one-tenth the price. If Walmart’s trading for $137 per share, you’d pay $13.70 for your piece. You’d earn one-tenth the dividend, too.
Once your IRA is open, start investing in fractional shares of stocks or exchange-traded funds (ETFs) that hold stocks. You’ll want to keep some cash or Treasury debt too. Use these resources to help you set up your portfolio:
Asset allocation by age
How to invest in ETFs
Safe stocks
Your goal is to achieve market-level returns, which have historically averaged about 7% after inflation. The table below shows how much your contributions can grow at that earnings rate over time.
Monthly Contribution
Contribution Rate (% of Salary)
Retirement Balance after 10 Years
Retirement Balance after 20 Years
Retirement Balance after 30 Years
$15
0.5%
