Retirement Saving Tips for Late Starters

If you’re like the majority of Americans, then you may be behind in your retirement planning.  And the closer you get to retirement age, the more you might feel that your situation is hopeless.

It’s true that the best retirement plans are those that involve beginning early and aggressively saving for decades, taking full advantage of compound interest.  Nonetheless, if you find yourself in your 50s and unprepared, there’s still a lot of hope.

 

You’re not alone

According to a Retirement Confidence Survey that was carried out by the Employee Benefit Research Institute, 60 percent of American employees have less than $25,000 in retirement savings (this does not include the value of their home), and 36 percent of American employees have less than $1,000 in retirement savings.

These statistics are even worse when you focus on older workers.  Among those aged 55 and above, 41 percent of them have less than $25,000 in retirement savings and just 54 percent of them have actually calculated the amount of savings they’ll need for retirement. 

The good news is that it is never too late to start saving. The road to financial security for late starters is a little bit challenging; however, it is still possible if you buckle down and get strategic.

Here are a some tactics you can implement to help you catch up on your retirement savings.

 

1.  Boost your savings

Well, of course, right?  But this is a biggie, and it’s going to require a significant amount of sacrifice and focus if you’re trying to catch up.

To increase your savings, you’ll have to decrease your spending and/or increase your income. This may be a real challenge for you, especially if you’re stuck in a pit of limiting beliefs and scarcity thinking.

You may need to challenge some of your thought patterns surrounding money and wealth.  It could be these very beliefs and perceptions that are keeping you from making financial progress.

If you’re living paycheck to paycheck, you’ll need to get creative.  Here are a few ideas to get you started:

  • Drive used cars instead of new ones
  • Get rid of unnecessary insurance policies
  • Consider getting a new/second job
  • Eliminate any unnecessary expenses
  • Bank the raise
  • Increase your savings automatically with an automatic withdrawal plan from your paycheck
  • Get rid of all consumer debt

All of these ideas will provide more cash flow that you can apply to your savings.  But everyone’s situation is unique, so take some time to brainstorm your own list.

 

2.  Convert non-producing assets into retirement savings

When you get serious about saving, you’ll probably get to a point where you’ve exhausted all the ordinary methods and need to think of some alternative strategies. 

If you’ve paid off your debt, reduced your expenses, gotten a raise, and you’re still coming up short with your savings goals, consider increasing your cash flow using these tactics:

  • Downsize your home
  • Sell a car
  • Relocate where you live / move to a lower cost housing market
  • Reverse your mortgage
  • Rent out a room
  • Sell other assets such as jewelry, antiques, vacation home etc

Some of these ideas may seem extreme, but your future financial security is at stake.  Weigh the cost of the sacrifice today with the benefit you’ll experience in retirement.

 

3.  Maximize tax-deferred savings

It is much easier to save for retirement when your employer and the government pay part of the bill.  You can benefit from this in two ways:

  1. Through an employer-matching savings program
  2. Through tax-deferred savings which provide an up-front tax advantage to you

For instance, if your combined federal and state marginal tax rate is 35 percent, you can put your money in a 401(k) or IRA and it will only cost you 65 cents on the dollar. The government will pay the remaining amount by deducting it from your tax bill.

Below are a few other strategies that you can use to catch up on your retirement planning by having the government and your employer pay part of the bill:

  • Maximize your retirement plan contributions
  • Make catch-up contributions
  • Use multiple savings plans 
  • Switch employers for more favorable benefits

 

4. Direct-ownership and Leveraged investments

This is a strategy that comes with higher risks, but also higher rewards.

An example of a direct-ownership asset is owning income-producing real estate.  If you invest in a rental property, you risk the value of the property decreasing.  This is especially risky in an economy that’s experiencing a recession. 

However, this risk can be offset by the potential earnings you would make from the rental income.  If you wouldn’t need to liquidate these assets for immediate income, you could hold onto the property until its value returns to an acceptable level.

Another example is owning a business.  This also comes with its own risks, but in this internet age you can start your own business with minimal investment.  You can build and maintain a website for very little money, promote your product or service, and reach people all over the world.  There’s never been a better time to be an entrepreneur.

Either of these strategies would typically require a serious hands-on, long-term commitment.  But the income possibilities they offer make aggressive retirement savings objectives possible.

 

5.  Stretch your savings

When it comes to using your retirement savings, the key principle is that you must get the maximum value for each dollar that you spend.

Eliminating all unnecessary expenses, buying used, and spending only what you can afford are always good principles that will help you stretch your retirement dollars.  All of these habits will get you the maximum value of your money.

This will also become much easier for you when you acknowledge that happiness comes not from stuff but from experiences. When you focus on the experiences, the spending will naturally decline.

 

6. Redefine your retirement

Going back to work after you retire may sound like an oxymoron.  However, working like crazy for more than 40 years and then spending another 30+ years of your life doing nothing doesn’t make much sense either.

For the majority of people, having a full-time career until the age of 62 and then retiring from the workplace is an artificially forced ideal. The reality is closer to a transitional phase of semi-retirement from your 50s to your late 70s (depending on your health). 

Below are a few reasons why you should consider working full-time or part-time after you retire:

  • The extra money will be helpful.
  • Reading novels all day or playing endless rounds of golf may not be your definition of happiness.
  • You want to re-invent yourself and pursue another dream career.
  • You want to get out of the house and spend some time around other people.
  • You prefer a daily routine to 30+ years of unstructured days.
  • You enjoy the personal connection that you have with your co-workers.
  • You want to stay relevant and active.

Continuing to work into your late 60s and 70s is a great way to support the lifestyle you want in your golden years.  As long as your health permits, having a job to keep you busy and engaged with others can give you a sense of purpose and usefulness as you get older.

 

There is hope!

Even if you’re in a pile of debt and you’re barely making ends meet, there is hope for you.  There is!

Write down your goals, get serious about slashing expenses, be committed to saving every dime, and commit to doing whatever it takes to start building your future retirement.

This is the time to buckle down and make those tough decisions about what to sacrifice now for the sake of your future.  Nobody knows what tomorrow brings – a job loss, a health scare, a lawsuit – so start preparing today.

Giving up and giving in to limiting beliefs will only keep you where you’re at, and it will never get you where you want to go.

Take back control and take a stand for your future self.  Today is the day of new beginnings.

 

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Hands holding pink piggy bank with text overlay: Practical Saving Tips for the Late Saver

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