A financial planner has revealed how forgoing your daily coffee could save you a fortune in retirement. 

Investment advisor Patrick Donnelly says resisting the temptation to buy your cold brew or latte, and making it at home instead, could mean you have a staggering $315,828 more to fall back on in your later years.

Donnelly, of Donnelly Financial Services, advises ditching one discretionary expense, which costs you around $40 a week, whether it be coffee or cutting down on takeout. 

‘It could drastically change your retirement lifestyle, and your ability to retire in the timeline that you’d like’, he said. 

It comes as the latest data from retirement provider Fidelity revealed that the average 401(K) and IRA balances are $108,200 and $109,000 respectively.

Financial planner Patrick Donnelly said forgoing your daily coffee could save you a fortune in retirement

You could save $1,920 a year by cutting out $40 a week of discretionary spending, Donnelly said

You could save $1,920 a year by cutting out $40 a week of discretionary spending, Donnelly said

‘We live in a world which is immediate gratification-oriented, and I think that is one of the biggest hurdles to overcome,’ Donnelly told DailyMail.com. ‘We can easily slip into these negative spending habits.’

‘As income comes in we have a choice. We can spend that on today’s expenses – some of which are necessary and some of which are unnecessary – or we can invest for our future self.’

The key, he said, is to consider your ‘guilty-pleasure’ spending habits and pick one thing that you could live without which is detrimental to your long-term savings.

‘Let’s say you pick up a coffee every day, so you spend $40 a week on that,’ he said.

That’s $160 a month you could save by forgoing that discretionary spending, or a huge $1,920 a year.  

‘Think about what that could that be doing in a tax-free Roth IRA or just a general retirement account,’ he continued. 

‘Assuming a 10 percent average rate of return, after 20 years you would have $109,968. After 30 years, it would be $315,828.

‘That is real money that can drastically change your timeline toward retirement, and it can drastically change your retirement stability.’

Earlier this year, Fidelity, the US’s largest 401(K) plan provider, warned that fewer than half of Americans are on track to comfortably retire after the pandemic and red-hot inflation hammered savings plans.

It found that a meagre 29 percent of people are on track to cover all of their expenses in retirement, down from 38 percent in 2020. 

Some 11 percent of Americans were not at all on track to meet their retirement needs - unless they make significant adjustments to their lifestyle

Some 11 percent of Americans were not at all on track to meet their retirement needs – unless they make significant adjustments to their lifestyle

Analysts said the trend is being driven Generation Z - those aged between 11 and 26 - who saw their average savings shoot up by 17 percent since the final quarter of 2022

Analysts said the trend is being driven Generation Z – those aged between 11 and 26 – who saw their average savings shoot up by 17 percent since the final quarter of 2022

Fresh data this month found, however, that the nation’s retirement outlook had improved as the average 401(K) and IRA balance had increased by 4 and 5 percent respectively in the first three months of the year. 

Analysts said the trend is being driven by increased employer contributions and by Generation Z – those aged between 11 and 26 – who are more wary about their savings than older generations.

But if you’re falling behind on contributions, Donnelly advises taking a ‘hard look’ at your spending.

‘Think about what your money could be doing for you in an investment or savings product where you are receiving compound interest,’ he said.

‘When you see these pretty fantastic numbers grow over time it really does force you to confront your spending behavior.’

The majority of US workers rely on an employer-sponsored 401(K) for their retirement plan.

Auto-enrollment means a fraction of a worker’s salary goes straight into their 401(K) from their paycheck, which is then matched or partially matched by the employer.

The Financial Industry Regulatory Authority says most employers use a 3 percent default contribution.

However workers are encouraged to up these contributions – especially as their salary increases.

And it is critical that employees start saving as early as possible to give more time for their money to grow through compound interest – which is when you earn interest on both the money you have initially put aside plus the interest you have already accrued.

For example, if you invested $10,000 with a 10 percent annual return, after one year you will have $11,000. The next year the 10 percent interest is applied to the $11,000 rather than the original figure.

It means in ten years’ time your $10,000 pot will have grown to $25,937.

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