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40% of Americans are taking a massive retirement risk

Katie Brockman, The Motley Fool

Saving for retirement is a long and thoughtful journey. It takes decades of consistent saving to see your nest egg grow to a healthy size, and it's not something you can achieve overnight.

However, when it comes to retirement planning, a good chunk of the population is taking a huge gamble — literally.

Hands sliding poker chips across the table

Image source: Getty Images

Roughly 40% of Americans think winning the lottery would be a good retirement plan, according to a survey from financial company Stash. The idea is even more popular among younger workers, with nearly 60% of millennials saying winning the lottery is a reasonable way to prepare for retirement.

You may dream of becoming an overnight millionaire, but the odds of winning that much money are shockingly abysmal -- somewhere around 1 in 300 million for huge jackpots like the Mega Millions or Powerball, making it far more likely for you to be struck by lightning or give birth to quintuplets than to win the lottery.

So why do so many people think playing the lottery is the best way to prepare for retirement? Probably because for those who are struggling to save anything at all, even the terrible odds of winning seem better than the odds that they'll be able to save enough on their own.

Preparing for an expensive future

It's no secret that Americans are struggling to save. In fact, three-quarters of millennials in the survey admitted that they're living paycheck to paycheck -- which makes it more understandable why so many are banking on hitting the jackpot to fund their retirement.

Saving for retirement when you can barely pay rent may seem impossible. But if you put it off until later, it will be even harder to catch up. Because of compound interest, if you sock away even a few dollars now, that money will snowball over time and grow into significant savings. The longer you wait, the less time your money has to grow -- meaning you'll need to save more each month to see your savings grow as much as they would had you started saving earlier.

If you don't save for retirement, your golden years may not be quite as comfortable as you'd hoped. You'll likely end up depending on Social Security benefits to make ends meet, and considering the average monthly check amounts to roughly $1,300, you may have to pinch pennies to get by. Especially as you get older and will likely be spending more on healthcare costs in retirement, Social Security alone probably won't cut it.

Even if you're strapped for cash right now, if you're creative with how you spend your money, you may be able to find a few areas where you can save more. And although you may not be able to save a lot right now, it's better than saving nothing at all and hoping the lottery will solve all your problems.

Finding money in hidden places

The best way to figure out where you can save more money is to create a budget to first see where all your money is going. While it may seem like you have absolutely nothing to spare to put toward retirement, chances are you can cut back somewhere. Sometimes, you don't even fully realize how much you're spending each month until you see it written out in front of you.

Once you have an idea of how much you're spending and what you're spending on, see where you can cut back. Some expenses -- such as your mortgage or rent, loan payments, etc. -- may be fixed, but you may be able to cut back on variable costs like groceries, gas, and dining out.

Take an initial pass at your budget to see what can be cut right away. For example, maybe you find that you're still paying for that subscription service you rarely use. Or perhaps you're going out to lunch every day at work when you could start packing a lunch at least a few times each week.

Next, start chipping away at some of the essential costs. For example, while you need to buy groceries every month, you may be able to save some money by joining your store's rewards program or clipping coupons. Or maybe you could open up a new credit card that offers cash back or other rewards, so you can still save money even while buying the essentials. You may only save a few dollars each trip to the store, but it adds up.

Also, if your employer offers matching 401(k) contributions, be sure to contribute at least enough to earn the full match -- otherwise, that's free money you're leaving on the table. With matching contributions, you can potentially double your savings just by putting money in your 401(k), which can go a long way when you're stretching every dollar.

If you're in a more dire situation (i.e. you're just a few short years away from retirement with next to nothing saved), you may need to make more significant cuts. While saving an extra $100 or $200 per month is better than nothing, it won't be enough to build a nest egg that will last through retirement. In this case, in addition to making budget cuts and pinching pennies, you may choose to downsize your home to save several hundred dollars per month on mortgage payments, or you may move to a less expensive neighborhood to cut down on property taxes. This isn't a decision to be made lightly, but if you're seriously behind on your savings, you do have options.

For many people, saving for retirement is something you know you should be doing, yet it often feels like an impossible goal -- so much so that winning the lottery seems more realistic than building up your savings on your own. But even if you don't have much money to spare, it's much wiser to put that extra cash toward your retirement fund instead of a lottery ticket.


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