Top Ways to Recover From a Late Start on Retirement Planning
Updated on Nov 02 2018
A successful retirement takes planning, not guessing. If you haven’t been proactive with your retirement planning, here are four key ways you can recover so that you don’t need to worry about your financial future.
If you haven’t made the best financial decisions in your life and don’t have a solid retirement nest egg, there’s still time to be strategic to save as much as you can; even if you’re in your 50s.
America is a consumerist culture and many seniors are feeling that they are not able to retire. In fact, when the Employee Benefit Research Institute asked workers as part of its latest Retirement Confidence Survey how much they had set aside for retirement, more than a third of those between the ages of 45 and 54 who answered said they had “less than $25,000 saved,” while more than a quarter of those 55 and older said they had no formal retirement plan and were relying on Social Security benefits and their workplace 401k.
The good news is that even if you are part of the Americans who are not prepared, your situation isn’t hopeless. You still have enough time to significantly improve your retirement prospects, if you’re willing to start taking serious steps now.
Here are the three most important things ways you can recover:
1. Start Saving 10 to 20% (or More!) of Your Income
If you want to catch up from years of of no retirement saving, it’s going to require real discipline and some major lifestyle adjustments. If you make a diligent, strategic effort to save, you might be able to achieve a pretty decent nest egg in the waning years of your career. An expert financial advisor can help you create a retirement portfolio that makes the most sense for your unique situation.
For example, if you and your spouse are able to save $500 a month and earn a 6 percent annual return on that money over the next 15 years or so, you would enter retirement with a stash of more than $145,000. If you can manage to save $1,000 a month, you’ll be looking at more than $290,000. The amount you end up with will depend on how much you actually set aside and what rate of return your savings earn, but making a conscious effort to save money, and have it electronically withdrawn into your investment accounts each paycheck will pay off tremendously.
2. Take Advantage of Retirement Accounts and Catch-Up Contributions
Retirement accounts offer many great tax benefits and opportunities for saving. For example, you’ll want to do most of your saving in an employer-sponsored plan like a 401(k), which, aside from its tax advantages, has generous contribution limits ($18,500 this year, plus a $6,000 catch-up contribution for people 50 and older).
If you don’t have access to a 401(k), you can open an IRA, which allows you to set aside up to $5,500 a year, plus an extra $1,000 for people 50 and older. But whether you save in a 401(k), an IRA, a taxable account or some combination of those three, the point is that the sooner you start doing so and the more you put away, the better your chances of having a secure retirement will be.
Be careful with risky investments as you may lose more than you earn and won’t have enough time to recover before retirement. A good approach is to build a diversified portfolio of low-cost stock and bond funds that provides a shot at reasonable investment gains consistent with your tolerance for risk. Keep in mind that as you approach retirement, you want to switch to a more conservative portfolio. A fiduciary advisor can help you choose the investments that will give you the best return without sacrificing your money.
3. Work As Long as Possible
Consider working longer as your finances will benefit in the long-run. You will save more money for your retirement nest egg, not to mention you will get more money from your Social Security if you wait to retire as your payouts are based on your highest years of earning. For example, while you are eligible to claim benefits as early as age 62, your monthly check could be nearly twice as much if you wait until you’re age 70.
In a recent study titled “The Power of Working Longer,” retirement researchers showed that postponing retirement and continuing to work can be one of the most effective ways of boosting your post-career standard of living, often more helpful than increasing your savings rate.
Even if you retire, taking a second, part-time job is a great way to earn extra spending money while keeping active in the community. Many seniors find retirement jobs enriching and fun—while greatly benefiting their pocketbook.
Keep in mind, though, that working longer is not an option for everyone. The Employee Benefit Research Institute has consistently found that nearly half of workers retire sooner than they expected, often because of health issues, layoffs or because they have to care for a spouse or other family member. So it’s important to not slack off on saving now because you think you’ll be able to compensate by extending your career.
4. Be Resourceful and Enlist Help
Depending on how far behind you’ve fallen in your retirement planning efforts, you may not realistically be able to save enough or put in enough extra years in your job to make up for lost time. Which means you need to be open to other ways to enhance your retirement security.
One possibility is to look for sources of extra income aside from Social Security and your savings. Relocating to an area with lower living costs and downsizing to a more affordable house might also help you stretch your retirement savings. Consulting with an expert fiduciary can help you determine what retirement planning steps make the most sense for you. You’ll need to assess your spending, budget and savings and investment plan; and then supplement with additional ways to increase your nest egg.
It won’t be easy to catch up on years of missed compound interest, but an expert financial advisor can help you strategize how to improve your chances of achieving a secure retirement. You can also lead a more modest life and be strategic to increase your retirement income by not spending too much and by focusing on saving money.
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