How to Save for Retirement When You’re Broke

by Alexa Mason · 7 comments

You’re broke. And it’s killing you. Not because you want to go out and buy yourself a bunch of crap, but because you have bigger financial dreams.

You want to be able to save. You want to fully fund an IRA or 401k each year. And you certainly don’t want to be living off ramen noodles in your golden years.

So what do you do?

Here are three easy strategies that can help you save for retirement — even if you’re broke.

Start Small

I’ve never had an employer-sponsored retirement plan, so when I decided to start a retirement account, it was all up to me. At first I thought I would need at least $1,000 to open up an IRA. I started adding money to a savings account, waiting for that balance to hit a grand. It felt like it was taking too long, so I soon gave up.

Fast forward a few years, and I’d smartened up. I started doing research and realized I could open up an IRA with as little as $10, with no required monthly contributions. I was elated.

I opened up an account with Betterment: starting with $50, then opting to have $100 a month automatically withdrawn from my checking. But you don’t even have to start with $50 or $100. You can open up an IRA at various brokerages for as little as $10. And the monthly contributions? That’s your choice, too. If all you can swing is $10 per month, then go ahead and do it.

Don’t be fooled into thinking that your $10 per month isn’t worth it. The truth is that even the smallest amounts add up. And more importantly, you’re creating a very good financial habit.

Just do it. Contribute whatever you can each month.

Add Your Windfalls

You know those little windfalls you come into every year, like income tax refunds and bonuses from work? Put them to good use by adding them to your retirement savings. Since it’s not money that you’re counting on to get by, it won’t hurt to stash it away.

Also, don’t forget overtime! Even if your check is only an extra $20, throw it in; that money will add up.

Increase Your Contribution Each Year

Every so often, set your retirement contributions to go up a certain percentage. By slowly increasing the amounts you’re adding, parting with your money won’t sting as much. If you’re starting with really small monthly deposits, then consider upping them by 20 to 30 percent each year.

If that’s too much, go for five or ten percent — just do whatever works best for you.

Don’t get fooled into thinking that you can’t start saving for retirement if you don’t have much money. It’s simply not true. Instead, do the best with what you have and work on improving from there.

After all, millionaires are made $10 at a time!

Do you have any other tips for people who think they can’t save for retirement?

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  • Lispineau says:

    Many teachers work like dogs, no vacations for 20 years. They deserve a million; they saved it when young for when they no longer can do so.

  • Phil says:

    Yes, just start. As a school teacher, I cannot emphasize this enough. Most other teachers I know have nothing saved beyond the required 5 % that the school district forces them to save. $5, $10, $20 or $50 per month.

    And let it be a Roth IRA. I will have 3.2 million when I retire, and I won’t be paying taxes on three-fourths of it. And then there is the pension on top of it.

    • Maximus Max says:

      It’s so good to be in the public sector, right? A retired millionaire with a pension to boot. Thank you taxpayer! Enjoy your Raman Noodles…

  • Nick says:

    Interesting mindset on opening an IRA. I don’t think I realized that fear of not having enough to open an account. Very interesting point you made about how much it takes to start. Starting is key as you see it add up over the years!

    • David @ says:

      Starting IS key. Even $10 once a week will be $1,000 in two years, and that’s not even counting the long term growth of risk-investments!

      Drip, drip, drip (that’s the sound of your money splashing into your nest egg!)

  • Jon @ Money Smart Guides says:

    I can attest to small amounts adding up. When I first started saving for my retirement, I had $20 withheld from my paycheck. A few years later, I was amazed that the $20 grew into a few thousand dollars. I then started increasing the amount I contributed each year since. Slow and steady really does win the race!!

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