Saving for retirement has become increasingly challenging in recent decades. Few workers still have access to a pension, and Social Security doesn’t go as far as it used to — leaving many Americans worried about how much they’ll need to save on their own.
Shark Tank‘s Kevin O’Leary discussed these concerns in a 2012 interview with TheStreet, and over a decade later, his advice is more relevant than ever. Here are some of the most effective ways to prepare for a more secure retirement.
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1. Make a habit of reducing expenses
In the interview, O’Leary points out that enjoying a comfortable retirement isn’t just about saving more: It also involves spending less.
“The best antidote to panic is realism,” he explains. “If you’re healthy and happy, being old is cheap. Walking, working part-time, and living a life of purpose and meaning don’t require a lot of money, just planning and discipline.”
He suggests workers aim to spend around 65% of their preretirement income after they retire. So if you’re currently spending, say, $70,000 per year, you might need around $45,500 per year in retirement. Considering the average retired worker collects just under $24,000 per year from Social Security, that would leave around $21,500 per year coming from savings or other income sources.
Of course, this is only a rough guideline, and your actual expenses may vary significantly. But O’Leary notes that by getting into the habit of living more frugally now, you can worry a little less about saving.
“So yes, spend those last few working years socking away as much money as you can, but also use those years to practice living on a lot less, lowering your expectations, and cultivating disciplined spending habits,” he says.
3. Invest aggressively (but not too aggressively)
How your investments are split up in your portfolio can have an enormous impact on your overall savings. Even if you’re only contributing to a 401(k) or IRA, you’re likely investing in a mix of stocks and bonds.
Stocks tend to carry more short-term risk, but they significantly outperform bonds over time. When you still have decades left until retirement, it’s wise to invest more heavily in stocks to maximize your earnings. Then, in the years leading up to retirement, you may shift your portfolio gradually toward the conservative side to protect your savings against market volatility.
In some cases, investing even slightly more aggressively can boost your savings by hundreds of thousands of dollars. For example, suppose you could earn an average rate of return of either 6% per year by investing more conservatively, or 8% per year with a slightly more aggressive approach. (For context, the market itself has earned an average return of around 10% per year, historically.)
Let’s also say you’re investing $200 per month. Over time, here’s roughly how much you could accumulate, depending on whether you’re earning 6% or 8% average annual returns:
| Number of Years | Total Savings: 6% Avg. Annual Return | Total Savings: 8% Avg. Annual Return |
|---|---|---|
| 20 | $88,000 | $110,000 |
| 25 | $132,000 | $175,000 |
| 30 | $190,000 | $272,000 |
| 35 | $267,000 | $414,000 |
| 40 | $371,000 | $622,000 |
Data source: Author’s calculations via investor.gov.
It’s important to note that investing aggressively doesn’t mean taking on unnecessary risk. The stock market should never be considered a way to “get rich quick,” and short-term investments are likely to cost you far more than whatever you gain from them.
That said, ensuring your strategy is aggressive enough for your age can help your investments go further. In general, a rule of thumb is to subtract your age from 110. The result is the percentage of your portfolio to allocate to stocks, with the rest devoted to bonds or other conservative investments.
3. Balance investing with debt repayments
“If you’re heading toward retirement with debt, now’s the time to budget like you’ve never budgeted before,” O’Leary says.
Paying down debt — especially high-interest debt, like credit card debt — can free up space in your budget once you retire. That said, it’s still important to invest even as you’re paying down debt. If you put off saving until you’re entirely debt-free, you’ll miss out on valuable time to let your money grow.
To decide where to focus, consider the types of debt you have. If you’re saddled with high-interest debt, try to pay that off as quickly as possible — since that type of debt is likely costing you more than you’re earning on your investments. If you only have lower-interest debt like a mortgage, it can be wise to focus more heavily on investing while still making minimum debt repayments.
There’s no right or wrong way to save for retirement, as everyone’s situation is unique. But by keeping realistic expectations and taking steps to maximize your investments, you can stress less while still setting yourself up for a more comfortable retirement.
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