Sometimes, it seems as though personal finance advice is all about what you should have done. But we’re all able to easily identify the mistakes we’ve made in the past. The important advice is what you should do to correct those old mistakes. Shoulda coulda woulda is singularly unhelpful in those situations.
This is particularly true when it comes to retirement savings. If you’ve already received your AARP card and still have not started putting money aside for your retirement, those charts showing how much compound interest will earn you if you start saving in your 20s are depressing at best. But workers in that situation can’t afford to wallow in their “if only!” feelings, even though they might want to. Instead, they need to make a plan for the next 15 to 20 years:
1. Start putting money aside right this minute. It doesn’t matter if the amount of money you think you can afford to save is relatively low. Just putting some money into a retirement account is a step in the right direction. If your employer offers a 401k retirement plan, make sure you at least save enough to qualify for their matching contribution. It may not seem like much, but you’ll be very glad of the extra padding to your account once you start seriously thinking about retirement.
2. Downsize. If the amount that you are putting aside is not sufficient to keep you comfortable in retirement, then you need to start thinking of ways to cut your expenses so that you can add more to your retirement savings. Can you sell your house and live someplace cheaper? Can you trade your car for something cheaper, or lose it altogether? Are you paying for memberships or subscriptions that you’re not using? Do you eat out several times a week? Be willing to slash your expenses to the bone. You couldn’t ask for a more worthy cause than taking care of yourself in retirement. (Here are some more advice on how to downsize.)
3. Maximize your investments. Enough people are in the same lack-of-retirement-planning boat that there are several provisions for those who are over 50. While younger workers can only contribute a set amount to their 401k and IRAs, savers who are over 50 may funnel as much as $5,000 more every year. Take advantage of these higher limits and reap the rewards when you’re ready to retire.
4. Plan on working longer. The difference between how much you have saved to retire at 65 and the amount needed if you wait until you’re 70 can be enormous. In some cases, it can mean that you have to give up less of your lifestyle in favor of savings. If you love your job, why not just plan on staying there longer so you’ll have a little breathing room? (Alternatively, you can look into these ways to earn more money so you can still quit and enjoy income.)
5. Get professional help. When it comes to retirement planning, it can feel awfully intimidating trying to navigate the options. This is particularly true for workers who haven’t started saving before age 50, since they would likely have worked on their retirement savings sometime earlier in their careers if they hadn’t found investments intimidating. If this describes you, find yourself a qualified and objective financial planner to help you sort out your investment options. The National Association of Personal Financial Advisors can help you locate someone you can trust with these important decisions.
Starting your retirement savings late is not ideal. But rather than lament what you could have done differently, be proactive now and stick with it. You’ll be so glad you did.
Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence. They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it's free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.
- E*TRADE IRA - Official Site