4 Ways to Save for Retirement If You Started Late

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November 30, 2018
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4 Ways to Save for Retirement If You Started Late

For most of your working years, retirement may have seemed so far away, hard to even imagine while life was happening. Socking money away for the distant future is not always top of mind when you’re in your 20s, 30s, and even 40s. Maybe you were raising children, took time off from work to be a caregiver, or had a financial setback. Now that retirement is on the horizon, are you worried that your nest egg is not as large as it should be? If you’re behind in your savings, don’t be too hard on yourself. Fortunately, it’s never too late to start saving money. You may have to work a little harder at it, but here are four things you can do if you’re seriously considering retirement now.

  1. Maximize your Retirement Account Contributions

It’s important to determine a realistic timeframe in which you can retire and then set that date as the goal you will work towards. If your timeline has a bit of cushion, maximizing your retirement account contributions may be a viable solution. For instance, if your employer offers a voluntary retirement plan, such as a 403(b), 457(b), or 401(k), it’s a good idea to contribute the maximum allowable amount, take advantage of catch-up contributions if you’re over age 50, and inquire about any employer matching contributions. For 2019, you can contribute as much as $19,000 and an additional $6,000 if you’re 50 or older.

Once you’ve maxed out your employer-provided retirement account, you can open a Roth IRA and save even more. The maximum contribution to a Roth IRA in 2019 is $6,000, with an additional catch-up of $1,000 for those over age 50. Contributions grow tax-free and can be withdrawn tax-free because you will have funded the account after-tax.

  1. Pay Down Your Debt

Keeping debt to a minimum is a good practice at any stage of life, but that’s not always easy to accomplish. Once you’ve established your retirement date goal, it may be difficult to maintain the focus on saving when you’re holding on to debt. Do what you can while you’re still earning a paycheck to narrow down that debt so it will not negatively impact your ability to live comfortably once you’re retired. Concentrate on paying off credit cards and even your mortgage, depending on what stage of the mortgage you’re in. For example, in the early stages of a mortgage, your monthly payment is largely applied towards interest, so it might make sense to send extra money each month to be applied against the principal. If your mortgage is in the final years, the majority of your payment is applied to the principal, so you may be better off to invest that extra money.

  1. Stay in the Workforce Longer

Having a strategy for when you will claim Social Security can make a significant difference on your income in retirement. According to the 2018 Retirement Confidence Survey conducted by the Employee Benefit Research Institute, two in three retirees report that Social Security is a major source of income. Yet, that same survey showed that only 23 percent of people still on the job think about maximizing their benefits when they select the age at which they will claim benefits.

The Social Security Retirement Estimator can help you to work out what age will be best for you to start claiming benefits. A close evaluation of your finances can help determine if you’ll be in a position to retire in six months, nine months, or maybe you have to wait it out a bit longer. For each year that you delay taking Social Security between age 62 and 70, you increase your benefit by 7 percent to 8 percent. While you’re working extra years, the money you’re earning continues to count toward your benefit and can increase the payment you will eventually receive by 20 to 25 percent or maybe more.1 On top of that, staying on the job allows you to keep putting money into your retirement account and making investment gains. Lastly, working extra years means you are not drawing down your savings, leaving you with a bigger nest egg when you do finally retire.

  1. Look for Sources of Extra Income

There are a few options here, depending on how attached you are to your home. If you’re willing to downsize to a smaller, less expensive house, you can use any equity from the sale to boost your savings. You might consider relocating to an area with a lower cost of living. Another option is to stay in your current house and take out a reverse mortgage, which allows homeowners over the age of 62 to convert home equity into cash.

If you find yourself lagging behind in the savings game, do not despair. While your situation may be serious, it’s not completely hopeless. With some flexibility and a good bit of discipline, following the four steps outlined above can help you get serious about retirement even if you’ve fallen short in your savings. Also, consider seeking the guidance of a reputable financial planner who can help you to set realistic goals and put you on a path to retirement security.



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