The Federal Reserve states that the average retirement savings of someone between 45 and 54 is $250,000. For someone between 55 and 64, it’s closer to $400,000. These numbers are closer to $400,000. How does your bank balance compare?
If so, “not great,” there’s still time to start racking up major retirement savings, especially if you’re in a two-income household. Financial planners suggest that one income is sufficient to support your lifestyle and the remainder be used for savings or investments.
It might sound like a nightmare to pair down your lifestyle to bare bones, but after speaking to several experts, it’s actually a pretty feasible plan. It is clear that everyone agrees on this, from CPAs to financial planners and debt relief attorneys.
Not only is paring two-income households down to one a highly effective way to boost retirement savings—particularly in midlife and beyond—it’s also surprisingly possible. Here’s how to get started.
1. Plan and Delegate
“The basic idea is that, even in a dual-income household, you can live on one income while keeping the other to pay off your high-interest credit cards, build an emergency fund, invest it, or keep it as savings,”Lyle Solomon explained, “a An attorney in financeAuburn, California “Keep the higher income to cover all the expenses for your living, and keep aside the lower paycheck for your financial goal.”
Think about how much you and your partner will be able to save and what income they’ll use for living expenses. This will help you establish a baseline for the next steps.
2. Think about Your Most Worst Hurdles
Jason Ramage is a financial advisorCincinnati, Ohio, highlighted the importance of anticipating obstacles based on income levels. “For higher earners, the main roadblock will be lifestyle. That’s not just spouses and partners—expectations for gifts to family and how you spend time with friends may need to be communicated.”
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3. Split it Up
Once you’ve assessed where each income will go (and the obstacles you might face as a result), you can start divvying up funds. “A good starting point is looking into the 50/30/20 rule,”Julien Brault CEO of HardbaconCanadian Finance Management App.
“Take the one income, allocate 50% to basic needs, 20% to savings and debt repayment, and 30% to pleasure. Now, this may seem like a really tight budget at first, especially if there are other dependents, such as children. However, a couple will have some wiggle room with the 20% because they already have 100% of the additional income going into savings.”
The graph shows how Brault suggests that couples divide their finances using the 50/30/20 principle.
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4. Keep It Open
Brault suggests that the reserve income should be as transparent and easily accessible as possible. Both partners should have access to the accounts “so that it’s not one person spending all their money, while the other accumulates a chunky bank account. Life can be unpredictable, and this arrangement should remain fair for both parties.”
“Consider the second saved income as an agreed-upon amount to save amongst one shared separate account,” Brault continues. “Then, divide the 50/30/20 spending among the personal accounts. For example, if one person pays the bills, the other buys groceries and gifts. This will help avoid strife and keep everyone happy in the long run.”
5. Take it slow and keep at it.
Nearly all of the financial experts I spoke to stressed the importance for slowing down and easing into this lifestyle change. “A cold-turkey approach when it comes to finances will never work effectively,”Paul Sundin warns CPA. “Start the process slowly, and have a plan in place.”
“Staying committed can be challenging,”Solomon adds “It’s natural to feel burdened when you suddenly switch to living with one income. To make this more bearable, I recommend following it for a minimum of six to eight months, even when you want to give up. By the end, when they see the result, it becomes more of a habit and interest.”
6. Remember the benefits
It can be difficult to switch from two incomes to one. Whether you need extra convincing or are experiencing some one-income woes, it’s important to continually remind yourself of this lifestyle’s benefits.
“Added flexibility, starting to feel financially free long before you reach any target savings number, possibly opening doors to a move, career change, or starting a business that felt too risky when you were spending both incomes,”Ramage stated that there are many benefits to this approach.
It can be daunting to save for retirement. But there are many ways to make it easier. It is difficult to reduce your income to one. You might be amazed at how quickly your savings add up if you are able to pinch pennies and stay humble.