Invest Financial Planning

Is it Too Late to Start Saving for Retirement?

Jocelyn Black Hodes  |  July 20, 2020

It's never too late to start saving for retirement. Follow these seven steps to get started.

I’m 57 years old and wondering: Is it too late to save money for retirement? I expect to be working for another 10 years. Is that realistic? — Maria, Trenton, NJ

In an ideal world, you’d start saving for retirement with your very first paycheck and keep at it until the day you left your job. But that’s not the reality for a lot of people. There are plenty of reasons why many Americans do not have enough saved to comfortably retire in their 60s. Perhaps you suffered a financial blow (or several), or took time off from work to be a caregiver, or sacrificed to pay for your kids’ college. Whatever your reason, the good news is that it is never too late to reinforce your retirement savings. For those tackling this goal later in life, here are seven tips to help you succeed.

Be Realistic

It may be depressing, but you probably need to revise your ideal picture of retirement and be realistic about what you need to do in order to have enough income to sustain you for decades to come. This could mean scaling back your lifestyle, downsizing your home (or renting, moving in with family or relocating to a less expensive area), working longer and maybe even working part-time through retirement. Take a few pages from the FIRE handbook — it stands for “Financial Independence, Retire Early” — to write your own narrative about the way you want to live both now and in the future.

Have a Plan

There are several free online retirement planning calculators that can help you figure out how much you to need to save to support your retirement income needs. The AARP retirement calculator is a good one. It takes you through a step-by-step questionnaire that accounts for Social Security and other potential income sources (like proceeds from the sale of real estate and inheritances). Use it to get a detailed chart of your income sources over time and identify potential gaps. The calculator allows you to make a variety of adjustments to see how you can help improve your odds of not outliving your money. If DIY planning makes you nervous, it might be worth the cost of paying a fee-based Certified Financial Planner (CFP) to help you create a customized roadmap and implement suitable strategies. (Here are five questions to ask any financial planner before you hire them.)

Get Rid of Bad Debt, for Good

If you have nagging high-interest credit card debt, make it a high priority to pay it off. While debt consolidation loans are tempting, they can be riddled with fees and the application process can be a hassle. (Here’s a breakdown of what’s involved.) Instead, start with this handy spreadsheet to prioritize your debt and create an easy-to-follow payoff plan. You will save yourself potentially thousands of dollars that you can put into retirement accounts instead.

Get Going

Don’t waste time on guilt and regret. Just focus on catching up. You should try saving at least 10 percent of your current income on a regular basis, though 20 percent would be ideal. (We know, easier said than done.) If possible, set up a monthly automatic transfer from your banking account to a retirement account so you force yourself to save and not spend. Once you have eliminated high-interest debt, commit to saving at least 80 percent of any extra income like bonuses, tax refunds, inheritances or lottery money (yeah right!).

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Take Advantage of Tax Breaks

If you have a retirement plan available through your employer — a 401(k), 403(b), 457 plan — great. Set up automatic payroll deduction contributions, if you haven’t already. If you are already participating, increase your contributions as much as possible. An individual retirement account (IRA) is your other key to sheltering more of your savings from the IRS. The main types are the traditional IRA and the Roth IRA, but there are other types of IRAs that are ideal for self-employed individuals, nonworking spouses and more. . There are others, as well.

Keep in mind that if you are over 50, the IRS lets you put extra money in tax-deferred retirement accounts to “catch-up” on retirement savings in both your workplace account and your IRA. Just remember: Simply contributing to these accounts does not mean that you have purchased any investments (which is another step).

Stock Up on Stocks

Stock investing remains the best chance most of us have to grow our money and outpace inflation. Some financial advisers recommend equating your age to the percentage of your investment portfolio that should be allocated to less risky investments, like bonds (so if you are 57, you would have 43 percent invested in stocks). Some advisers would argue that formula is still too risky, while other advisers would argue that you should have a greater percentage invested in stocks to achieve the growth you need, despite your age.

Whatever allocation you ultimately choose, make sure that your portfolio is diversified and contains a variety of investments from different asset classes to spread out and reduce risk. And if you are uncomfortable making your own investment decisions, consult an adviser from your retirement plan’s administrator or a fee-only CFP.

Delay Social Security

One of the easiest ways to boost your retirement savings is to work longer. At age 62 your monthly Social Security payments would only be 70-75 percent of your full retirement benefit, but if you postpone claiming until age 70, your payments would be 132 percent of your full benefit. By waiting to collect, you will not only get more from the government when you need it, but you will also give yourself more time to save money in tax-deferred retirement accounts and build your nest egg. Additionally, your benefits are not affected if you continue to work after you begin collecting.

Saving for retirement can be daunting at any age, but it is particularly stressful when you are starting later in life. Taking stock of your current situation and having a realistic plan that includes investing in stocks will help you go a long way in a shorter time.

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