The idiot's guide to saving for retirement

By Peter Andrew

Early in April, 2015, a British doctor revealed results from years of medical research around the globe. People, he concludes, who are overweight (but not obese) live longer that those with a body mass index in the normal range. I immediately went on Facebook to complain. My personal retirement strategy has always been to live unhealthily and die young, but scientists keep moving the goalposts: Things (caffeine, red wine, excess weight…) that were once supposed to be certain bringers of death now look set to prolong my life. If they find cigarettes are good for you (I quit only relatively recently), I could go on till 100+.

I'm not asking for sympathy. I'll get by in my twilight years: I'm debt-free, own my own home without a mortgage, have some modest savings and do the sort of work that (providing some genius in Silicon Valley doesn't come up with an app that writes financial advice) I can continue to do for the foreseeable future. In fact, I plan my last conversation to be with the funeral home crew hovering at the end of my deathbed: "Hang on, guys. I just have to post this feature article and I'll be with you."

My point is that what you're reading now is a "do-as-I-say-not-as-I-do" piece. It also means I know all about how difficult it can be to save for an event way in the future when the current demands on your money seem irresistible.

Make retirement saving a priority

If that's how you're feeling at the moment, you're in the majority. More than half of Americans in an HSBC survey published earlier this year said they were too heavily in debt to save enough for their retirements. Some of them are undoubtedly right.

But only those in real poverty and with no choices should see debt as a reason for carrying on as before. Everyone else may be well advised (Do as I say!) to set about tackling their problem with a realistic yet ambitious debt-reduction strategy, complete with written budgets that are strictly applied. By all means consider ways of reducing your interest burden, such as credit cards with balance transfer promotions, but only if you're really serious. They can be dangerous without self-discipline and a plan.

Expect this to be a hard period in your life. But the benefits when you're finished could be amazing.

Make saving a habit

Once you're done with reducing your debt, you should have more spare money each month and you can set about building an emergency fund (see How to fix a broken savings strategy) to see you through future financial crises and ensure you don't need to borrow again to cover them. When you've saved enough in your high interest savings account to feel adequately cushioned, you should have acquired a savings habit that could see you prepare for a comfortable retirement.

To be really successful, you need to change your money mindset. Most people pay their bills, spend what they need (or want) and then save anything that's left over. A much better way is to set your monthly savings target and then regard that as a bill, just like your mortgage/rent or utility payments. So the money left over after you've saved and stayed current on accounts becomes what you spend on food, gas, treats and everything else.

Debt or no debt?

Intuitively, it's better to go into retirement debt-free than burdened with borrowing. But some experts argue that it can be smart, though only in limited circumstances. We're not talking about high-interest loans like credit cards. But a low-cost mortgage or home equity loan can work as a hedge against inflation -- not that there's much of that around at the moment. And there can be other situations in which carrying other forms of debt into retirement can be strategically valid.

However, last year's Retirement Confidence Survey from the Employee Benefit Research Institute revealed that 44 percent of baby boomers are concerned about their debt levels, so it's important to think carefully before opting to retire with serious borrowing.

How much?

The trick with saving for retirement is to start young. But even then it's not cheap. CNN Money reckons that someone in their 20s needs to put aside 10 percent or 15 percent of their income to be reasonably certain of comfortable twilight years. Those starting later may need to make even bigger monthly sacrifices.

Your goal should be to have $15 or $20 in savings for every dollar you're going to be short (the difference between your outgoings and your social security and pensions) each year. So if you need $10,000 per year more than those social security and pension incomes to maintain your lifestyle, you may want $150,000 to $200,000 in savings. Better get started.

That 2014 Retirement Confidence Survey found only 28 percent of people who were already retired being very confident that they'd have a financially secure retirement. One day, you're going to really want to be among them. An early death may not be an option. And, anyway, you shouldn't forget that old joke: "Who on Earth wants to live to be 97?" "Someone who's 96."