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Saving for Retirement with a Small Salary

You know how important it is to save for your retirement years. Problem is, you don’t make a lot of money. Maybe you’re pulling down $40,000 a year. Maybe your annual salary is even under $30,000. It might seem impossible to put anything away for retirement if your yearly salary is so low.

Related: How Much Do I Need to Save For Retirement?

Here’s the good news, though: Even if you make a small salary, you can still save for your retirement years. True, you won’t be able to save as much each year as your neighbor who pulls down $80,000 a year. But your neighbor won’t be able to save as much as the CFO across the street who earns $250,000 a year either.

But if you’re smart, you will be able to save enough money to maintain your current lifestyle. And that is the goal of retirement saving.

You’re Not Alone

If you’re worried about having enough money to save for retirement, know this: You’re far from alone.

A recent survey by American Consumer Credit Counseling found that a majority of respondents did not feel prepared for retirement, no matter how much money they earned. The survey found that 86% of respondents who earned from $20,000 to $30,000 a year did not feel as if they were prepared financially for their retirement years.

That isn’t surprising, you say? Well, the same survey found that 79% of respondents who earned $100,000 to $150,000 a year felt that they weren’t prepared, either.

There’s a lesson here: Most of us have the same fears regarding retirement. And these fears don’t discriminate whether you make hundreds of thousands or tens of thousands a year.

Start Early

To key to saving enough money for your retirement is to start saving as early as you can. If your company offers a 401(k) or other type of retirement savings plan, be sure to enroll. The easiest way to set aside money for retirement is set up an automatic deduction from every paycheck. In time, you probably won’t even miss the money.

Related Article: 4 Financial Blunders That Keep You From Getting Rich

And you should start saving early even if you can only save a small amount. Saving just $100 a month can add up by the time you reach retirement age. If you save $100 a month starting at age 25, you can expect to have $142,040 saved up — factoring in an average rate of return on that money — by the time you reach 67.

Up that amount to $200 a month and you’ll end up with around $284,081 by the time you retire.

Be Realistic

That’s not a ton of money. And even with the assistance of Social Security, you won’t be able to live like a millionaire. It’s important to be realistic, though, about your retirement years. Retirement savings are meant to replace income. If you only make $30,000 a year and are able to live on that, you probably won’t be able to save enough money to travel the globe when you retire.

You might, though, be able to save enough money to live in a comfortable apartment, eat out when you’d like and spend time with your grandchildren.

Don’t expect to live a more extravagant lifestyle once you leave the workforce. If your annual salary is low, the same luxuries that are out of your financial reach today will probably be out of it after you no longer hold a job.


The more you are able to put away every month for retirement, the happier you’ll be once you leave the workforce. If you make a small annual salary, you’ll need to be more ruthless when it comes to cutting out the non-essentials.

It sounds like a cliche, but if you avoid the restaurant meals and morning coffees from neighborhood shops, you will have extra money to put away each month. And if you come into an unexpected lump sum of dollars — say a tax refund — it’s better to immediately save that money for retirement than it is to spend it on new furniture or a vacation.

Related Article: Top 3 Retirement Myths – Busted

Saving for retirement when you don’t make much money is never going to be an easy task. It will require sacrifice. But taking the hard steps today will pay off once you’re no longer drawing a regular check.

Photo Credit: 401(K) 2012

Dan Rafter
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