It’s never too late to jumpstart your retirement savings. Here are seven actionable steps to help you get on track.
I’m 57 years old and pondering: Is it too late to save for retirement? I plan to work for another 10 years. Is that doable? – Maria, Trenton, NJ
In a perfect scenario, you’d begin saving for retirement with your first paycheck and continue until you retire. However, this isn’t the reality for many individuals. Various factors contribute to insufficient savings for a comfortable retirement in your 60s. Whether it’s financial setbacks, caregiving responsibilities, or funding children’s education, the silver lining is that it’s always possible to boost your retirement savings. Here are seven strategies to assist you in this journey.
Set Realistic Expectations
While it may be hard to face, it’s crucial to adjust your vision of retirement to align with what’s realistically achievable. This might involve scaling back on your lifestyle, moving to a more affordable area, or even working part-time during retirement. Explore principles from the FIRE movement to shape your life now and in the future.
Create a Retirement Plan
Utilize free online retirement planning tools to assess your savings needs for retirement. The AARP retirement calculator is a useful option. It guides you through a detailed questionnaire considering Social Security and other income sources, such as real estate sales and inheritances. Use it to visualize your income streams and identify any shortfalls. If self-planning feels daunting, hiring a fee-based Certified Financial Planner (CFP) to tailor a plan might be a prudent investment. (Here are five essential questions to ask a financial planner before engaging their services.)
Eliminate High-Interest Debt
If you're burdened with high-interest credit card debt, prioritize paying it off. Although debt consolidation loans may seem appealing, they often come with high fees and a complicated application process. Instead, utilize this spreadsheet to organize your debts and devise a straightforward payoff strategy, allowing you to redirect funds into retirement accounts.
Start Saving Now
Avoid dwelling on past regrets. Concentrate on making progress. Aim to save at least 10 percent of your income regularly, with 20 percent being the target. Setting up an automatic transfer to your retirement account can help ensure consistent savings. Once you’ve tackled high-interest debts, try to allocate at least 80 percent of any extra income—like bonuses or tax refunds—toward your retirement.
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Utilize Tax Advantages
If your employer offers a retirement plan such as a 401(k), 403(b), or 457 plan, take full advantage of it by setting up automatic contributions. If you’re already enrolled, consider increasing your contribution amounts. An individual retirement account (IRA) is another vital tool for shielding your savings from taxes. The main types include traditional and Roth IRAs, along with other options suitable for self-employed individuals and nonworking spouses.
Remember, if you’re over 50, the IRS allows you to contribute more to tax-deferred retirement accounts to “catch up” on savings. Just be aware that contributing doesn’t equate to investing; that’s the next step.
Invest in Stocks
Investing in stocks provides the best opportunity for growth and to beat inflation. Some financial experts suggest that your age should dictate the percentage of your portfolio in lower-risk investments like bonds (for example, at 57, consider having 43 percent in stocks). Others may advise a higher stock allocation for necessary growth, regardless of age.
Regardless of your chosen allocation, ensure a diversified portfolio that includes various asset classes to mitigate risk. If you're unsure about making investment decisions, consult with an adviser from your retirement plan or a fee-only CFP.
Postpone Social Security Benefits
One effective way to enhance your retirement savings is by working longer. Starting Social Security at age 62 means receiving only 70-75 percent of your full benefit. Delaying until age 70 can increase your payments to 132 percent of your full benefit. By postponing, you not only maximize government support but also extend your time to build your savings in tax-deferred accounts. Plus, your benefits remain unaffected even if you continue working after starting to collect.
While saving for retirement can feel overwhelming, particularly when starting later in life, assessing your current situation and implementing a clear plan that involves stock investments can significantly enhance your prospects.
