Which sounds better: riding a tricycle on the sidewalk or driving a Lamborghini on the Autobahn? I'll take the Lambo, thank you very much.

Although the fast track sounds like more fun, with respect to retirement savings, most Americans aren't sure how to do it. Surveys repeatedly confirm that we aren't saving quickly enough to build up the funds we need to retire.

In a 2019 Wells Fargo survey, 46% of workers admitted to "putting off saving for retirement due to current financial challenges." A 2019 TD Ameritrade study revealed that 62% of Americans are behind schedule with their retirement savings. And 40% of respondents in an EBRI study admitted to having less than $25,000 saved for retirement.

Nightime drive on the Autobahn

Image Source: Getty Images

So how can an aspiring retiree change course and ramp up those retirement savings? Here are six steps to make it happen.

1. Save first

There's no way around this point: You have to develop a "save-first" mindset. Consider your retirement contributions as mandatory and non-negotiable. If you need to move, drive a different car, and eat ramen noodles once a week to make it happen, then do it. Without that attitude, you'll have trouble gaining momentum with your savings.

Set up automatic contributions to your 401(k) or IRA, and then increase your savings rate every time you get a raise or lower your living expenses. Even a regular increase of $5 or $10 monthly will make a difference in the long term.

2. Drive an older car

A new car may be on your wish list, but buying one is an awful financial decision. New cars lose about 20% of their value annually in the first four years. At that rate, you could buy a four-year-old model for about 80% less.

Buying a used car comes with other financial benefits, too. While you might have slightly higher maintenance costs, insurance costs will definitely be lower. A survey from The Zebra found car insurance on a four-year-old vehicle is about 10% less than it'd be on a new car. You'll also avoid the higher registration fees and/or personal property taxes associated with new cars.

3. Live in a smaller place

Living in a smaller home has a range of benefits. You'll usually spend less on utilities and maintenance, and your rent or mortgage will be lower. If you own the home, your property tax bill will be lower. And perhaps most importantly, you may find that you buy less stuff when you're short on storage space.

4. Pay cash when you shop

If overspending keeps you from saving for retirement, try a cash budgeting system. First, add up your non-negotiable living expenses such as rent, utilities, and your retirement contributions. (Yes, those are non-negotiable!) Subtract that total from your net pay. Whatever's left will cover things like food, gifts, clothes, and entertainment.

You can withdraw that amount from your checking account on each payday and use the cash for your groceries and nights out. But you have to make it last until the next payday. Stick with it, and you'll find that saving your budgeted amount for retirement is actually pretty easy -- because you accounted for those contributions first in your budget.

5. Bank your raises and bonuses

Increase your 401(k) contribution every time you get a raise. You should be able to direct about 75% of your raise into your retirement plan as contributions, with minimal impact on your net pay. If a raise adds $5,000 to your annual salary, increase your contributions by $3,750 for the year.

The difference between the $5,000 and the $3,750 will cover Social Security and Medicare withholdings that'll go up, thanks to your higher salary. Your federal and state income tax withholdings shouldn't increase much because the additional retirement contributions will lower your taxable income and offset most of your raise.

Some plans allow you to contribute your entire bonus to your 401(k). Ask your plan administrator if that's an option for you. If not, you can still make retirement-friendly choices with that influx of cash.

First, shore up your emergency fund. Then, contribute any excess to a traditional or Roth IRA if you're eligible. For either, you can contribute up to $6,000, or $7,000 if you're 50 or older in 2020. But there are restrictions:

  • Roth IRA contributions have income limitations. For single filers, the amount you are allowed to contribute starts going down when your income reaches $124,000. If you're married, your contribution limit decreases when your joint income reaches $196,000.
  • In a traditional IRA, you can always contribute up to the limit of $6,000, or $7,000 if you're 50 or older. But you won't always get tax deduction for that contribution. If you're also participating in your 401(k), the tax deduction for traditional IRA contributions starts phasing out at $65,000 in income for single filers. The income threshold for married couples filing jointly is $104,000. 

If your emergency fund can cover six months of living expenses and you've maxed out your IRA contributions, open a taxable brokerage account and invest the rest of your bonus buy buying equities and low-cost ETFs.

6. Invest for growth and income

Invest your retirement savings in low-cost funds that target both growth and income. Growth funds will increase in value faster, but you'll have to accept some volatility. Income funds are more stable, but don't grow as quickly. Investing in both can even out your portfolio's performance over time.

With that in mind, you can be more aggressive in your investment choices when you have decades before your target retirement date. You'll benefit from having a higher percentage of growth-oriented assets today and then gradually adjusting to a more conservative allocation as you near retirement.

Start slow to get on the fast track

Get back on course for retirement by rethinking your savings approach today. You'll find that as you develop a habit of saving, building wealth gets easier. You'll feel like you're pushing that Lamborghini at first --- but eventually, you can hop in and step on the gas.