It’s Not Too Late to Start Saving for Retirement: Here's How to Get Started
Many people in their 40s and 50s see retirement approaching in the future and start to worry that it’s too late to start saving for retirement.
While saving for retirement is easier when you start earlier in life, you can certainly still do it; you’re just going to have to work harder and save more than if you’d started at a younger age.
Don’t let your feelings about the past keep you from getting started now. The worst thing you can do is keep putting it off just because you feel bad for not having started yet.
Whether you're just getting started or want to tweak your existing savings plan, there are a number of strategies you can use to optimize your retirement savings and plan for a secure future.
Get clear on what’s important
If you’re in your 40s and 50s and you’ve been spending all of your money on boats, vacations, and home improvements, you’re going to have to get real with yourself about what your priorities are. Start imagining Retired You and think about what you want that life to look like.
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How are you going to take care of Retired You? How are you going to pay for living expenses? Until you’ve built up sufficient retirement savings, stashing money in your 401k is going to be your priority over any fun stuff.
Otherwise, when you find yourself driving home your new RV, it had better be because living in it is your retirement plan.
Use a retirement calculator
Start by consulting a retirement calculator to help you determine how much you need to save for retirement. This calculator from NerdWallet takes into account a range of factors, including age, income, retirement spending, other income, investment returns, and more so that you can decide on the best savings plan for your unique situation.
Remember, retirement planning is based on a lot of guesses and assumptions. Nobody knows for sure how long you'll live, what the stock market will do, or how much your life will actually cost. If you need help getting a more accurate picture or understanding the terms, it's a good ideaGet clear on what’s important
If you’re in your 40s and 50s and you’ve been spending all of your money on boats, vacations, and home improvements, you’re going to have to get real with yourself about what your priorities are. Start imagining Retired You and think about what you want that life to look like.
How are you going to take care of Retired You? How are you going to pay for living expenses? Until you’ve built up sufficient retirement savings, stashing money in your 401k is going to be your priority over any fun stuff.
Otherwise, when you find yourself driving home your new RV, it had better be because living in it is your retirement plan. to work with a Certified Financial Planner.
A retirement calculator will give you an idea of how much you should be saving to meet your goals, but sometimes the amount it tells you can be overwhelming. Focus on doing the best you can and don’t be too hard on yourself if you can’t reach that number just yet.
Utilize tax-advantaged accounts
You can increase the amount of money you get to keep by investing in tax-advataged retirement accounts. Check to see if your employer offers a 401k or similar plan. If you’re self-employed, there are a number of specific plans you can use, such as SEP-IRAs, solo 401ks, and more. In addition, anyone with earned income can save in a traditional or Roth IRA.
By investing your money in these accounts, your contributions could be taxed at a lower rate than normal income, which allows more of your money to go towards your retirement savings. Make sure to research the different options available and find out which ones are best for you.
Figure out how you can increase your retirement savings
As much as I’d like to tell you otherwise, there are only two ways to save more money:
Spend less on other things, and/or
Make more money
Whether it is cutting back on the number of streaming services you have, selling your belongings, asking for a raise, or getting a side hustle, make a plan to find extra money to put in your retirement account.
Read More: Things I Would Do Right Now if I Had to Cut Expenses to Save Money
Boost retirement savings rates gradually
If you’re still in the workforce, aim to increase your savings rate every year. Consider adding 1-2% more to your 401(k) each year in order to benefit from compounding returns, or increase your IRA contributions by $100-$200 towards the end of the year. Furthermore, if you have any bonuses or raises throughout the year, put that extra money straight into your retirement account.
Take advantage of catch-up contributions
Those ages 50 and older are allowed to contribute extra money to their retirement savings account(s). This is called a “catch-up” contribution. The amount you can contribute depends on the type of plan you have and the year of the contribution. Check the IRS website for the most up-to-date information.
Pay yourself first
Your retirement savings should be taken out before your paycheck hits your checking account. If you don’t have an employer plan, set up an automatic savings plan where you transfer a set amount to your retirement account immediately after you are paid—before you have the opportunity to spend that money elsewhere.
When you automate your savings you don’t have to worry about manually transferring funds; instead you know that regular, consistent amounts will flow into your retirement accounts every month. This is especially helpful for those who tend to procrastinate when it comes to saving and investing.
Once that’s done, it doesn’t matter as much if you want to buy daily lattes, get a jet ski, or eat out every night (as long as you’re paying your bills and not going into debt, of course).
Rethink retirement
It’s no secret that many Millennials and Gen Xers have been hit hard financially with multiple recessions, high student loans, and the promise of a good career with a retirement plan in a world that increasingly demands more and offers less. We can’t rely on pensions and our income has failed to allow us to save enough for the future. Sadly, it is a reality that most of us are going to have to rethink what it means to retire.
So what does that mean?
You might have to work longer. Maybe you stay in your job or transition to a different type of work that is part-time or allows you to work at home.
This doesn’t necessarily have to be a bad thing. Is there something you’ve been wanting to do that you couldn’t because it wouldn’t bring in enough income? Maybe it would provide enough when combined with social security to keep you living a good life. I know of retired people who have become writers, yoga teachers, and YouTube stars.
2. Rethink your retirement life. Instead of staying in the giant family home, maybe you downsize or move somewhere less expensive. If your dream was to travel, you could focus on places you can drive to instead of flying to Europe. There are many ways to enjoy life that don’t involve spending lots of money.
The thing is, people are living longer and our current retirement planning system wasn’t really designed to support people for 20-30 years. Society is going to see some major shifts in how we think about retirement. Instead of seeing it as a time to not work at all, perhaps we should see it as a time of transition to a different type of life.
How many of us have watched people retire who are then bored out of their minds? Wouldn’t it be better to transition to something less demanding and more engaging?
We all need to be asking ourselves what we want retirement to be like. How will we stay engaged? How can we continue to provide value to the world in a way that fits our desired lifestyle and keeps us feeling alive and useful?
Just start
After you finish reading this article, I want you to go make a contribution to a Roth IRA (or a traditional IRA if your income exceeds the limits). Click here to learn more about income limits.
In 2022, you can contribute $6000 to either an IRA or Roth IRA, plus an additional $1000 for those over age 50.
Then, talk to your HR department to make sure you’re taking full advantage of any retirement savings options your employer offers.
Get help
Work with a fee-only, fiduciary financial planner (one who has your best interest at heart and isn’t merely selling you products) to develop an investment and retirement plan that is appropriate for you. Financial planners have a range of tools to help you determine how much to save, the best tools use, and an investment plan that meets your risk tolerance and needs.
If you need help finding money to save in the first place, a financial coach can help you create a budget and transform your spending so that you can achieve your financial goals.
Whatever you do, don’t feel embarrassed and don’t let your feelings about the past keep you from taking action now. You can do this!
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