An eye-popping statistic recently made the news — and it’s directly related to the topic of saving for retirement. According to one survey, the average adult in this country spends $1,497 each month on “non-essentials,” which adds up to nearly $18,000 each year!1 Some of the categories include restaurant meals ($209.38 a month), cable TV ($90.57 a month) and online shopping ($84.11 a month).
How does your own spending compare? Have you ever tracked your spending over a few months to see exactly how much goes toward things you may not need but are simply nice to have? The results may surprise you.
One of the striking things about the $18,000 annual spending figure is that it is close to the limit the IRS has established for contributions to 401(k), 403(b) and most 457 plans in 2020. Each year, the IRS announces an annual limit for contributions to employer-sponsored retirement plans. For 2020, that limit is $19,500 (keep in mind that people age 50 and older may be eligible to save even more through catch-up contributions).
If you think contributing more to your retirement account seems impossible, it may be time to rethink your spending habits. Even if your own spending on non-essentials each year isn’t anywhere near $18,000, you probably have areas where you could cut back without any major changes to your lifestyle. One or two fewer visits to restaurants each month, a more affordable cable package, fewer impulse purchases made online — the savings can add up quickly. Best of all, you can use the savings to increase your contributions to your retirement account, where they can help you build the income you’ll need for the future you want.
Remember, many financial advisors say that we’ll need at least 70% of our pre-retirement earnings to maintain our pre-retirement standard of living.2 A few painless changes to our spending habits can make reaching that goal a little easier.