Most people don’t max out their retirement accounts. During 2016, only 10 percent of 401(k) participants contributed the maximum of $18,000 (or $24,000 for workers age 50 or older), according to Vanguard data. Saving that much money requires a large salary or making some frugal choices in other areas of your budget. Here are some of the sacrifices people who max out their 401(k) plans make in order to save for retirement.
[See: How to Max Out Your 401(k) in 2017.]
Drive an older vehicle. You don’t need a flashy car to get to work and run your errands. Many of the biggest retirement savers (47 percent) drive older vehicles, according to a Principal Financial Group survey of 2,424 retirement plan participants who contributed between $16,200 and $18,000 to their retirement account. Rosa Ybarra, a senior financial planner for Tranquility Financial Planning in McAllen, Texas, says her clients who max out their retirement accounts often do not purchase new vehicles. “These clients purchase used vehicles with all the bells and whistles they desire and keep them within the family for more than 10 years,” Ybarra says. “[They] also take the time to price out their insurance policies to get the most for their money.”
Own a modest home. Housing is likely to be the biggest cost in your budget. Finding ways to reduce housing costs can help you save more for the future. Almost half (45 percent) of those who max out their 401(k) plans say owning a modest home with reasonable monthly costs allows them to save more for retirement, the Principal survey found. “Don’t allow yourself to become house poor by buying more house than you can afford,” says Dana Menard, a certified financial planner for Twin Cities Wealth Strategies in Maple Grove, Minnesota. “The mortgage is just one of the many costs that homeownership is made up of, including mortgage insurance, taxes, closing costs, furnishings, utilities and maintenance.” Keeping housing costs reasonable frees up cash to use for other purposes and to prepare for the future.
Many millennial super savers (18 percent) are renting instead of purchasing a home in order to save more, compared to just 4 percent of Gen Xers who are doing the same, according to the Principal survey. A few millennials (5 percent) say living with their parents allows them to put money away for retirement.
[See: How to Save $1 Million by Retirement.]
Limit travel. Vacations can help you create wonderful memories with your family, but they are also expensive. Many super savers (42 percent) limit their travel or plan modest or frugal trips in order to boost retirement savings, Principal found. Mychal Eagleson, a certified financial planner and president of An Exceptional Life Financial in Indianapolis, Indiana, says one of his clients limits international trips to once every five years to save money. “Based on their finances, they could justify making a trip to a resort in Jamaica annually, but wouldn’t be able to save nearly as much as they do,” Eagleson says. “Instead, they rent a condo in Florida each year and only visit Jamaica about every five years. Because of this, they’re able to save thousands for other things due to not spending so much on travel.”
[Read: Retirement Savings Tax Breaks for High Earners.]
Maintain a lucrative job. Maintaining a professional career or a high paying job makes it easier to save for retirement. A third of 401(k) participants with incomes of more than $100,000 max out their 401(k) plan, compared to just 10 percent of all 401(k) savers, according to a Vanguard analysis of 4.4 million 401(k) participants. Many super savers (40 percent) say they stay at a job with high levels of work-related stress so that they can save for the future, Principal found. Some 401(k) participants complain that they miss out on time with their family or socializing with friends in order to save more (27 percent). A few millennial survey respondents say they are delaying having a family (22 percent) or starting a business (10 percent) so they can save money first. And some people take on a second job (4 percent) to help pad their retirement accounts. A lucrative job might require you to sacrifice your time with loved ones or defer hobbies or other interests, but it makes it a lot easier to fill up your retirement accounts.
Emily Brandon is the author of “Pensionless: The 10-Step Solution for a Stress-Free Retirement.”
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How Super Savers Max Out Their Retirement Accounts originally appeared on usnews.com
