For many people, retirement feels like a far-off, distant dream. You know it’ll happen eventually, but you still feel like you have a lot of time left. So, it’s easy to become complacent about saving for retirement.
By the time you reach your 50’s, retirement stops feeling like a dream and more like a looming reality. This is when many people begin thinking seriously about their retirement savings and evaluating where they’re at. And if they’ve been neglecting their savings up until this point, the pressure starts to set in.
Fortunately, if you find yourself at this point, there’s still time to catch up. It’s going to take a lot more work than it would’ve if you’d started at age 25 but it can be done. Here are four strategies to recover your retirement at a later stage of life:
1. Set a Savings Target
It’s fun to fantasize about retiring on the beach but at some point, but if you are starting to save later in life, you may need to be more realistic about what’s achievable. Think about your necessities in retirement and come up with a price tag for your vision.
There are many online tools that can help you figure out a budget so you can estimate how much you’ll need to save.
The amount of money you’ll need in retirement depends on a variety of factors. You’ll need to consider the kind of lifestyle you want to live, any debts that need to be paid off, potential medical bills, and how much support you will have from family and friends.
And as you’re setting your retirement goals, be careful not to set the bar too low. Few people end up downsizing their lifestyle in retirement so it’s a good idea to budget slightly higher than what you think you’ll need and aim to come out ahead.
2. Attack Your Debt
Retirement is much harder to manage when you have lingering debt. Having helped scores of friends over the years with overcoming debt, I always recommend the snowball debt recovery program. Start with your smallest debt first and throw money at it until it’s paid off. Then move on to the next smallest debt. The feeling of accomplishment you’ll get from killing off that first debt will often give you steam and help you attack the rest of your debt more aggressively.
The largest debt most people will ever take on is their mortgage. So, one of the best ways for many people to cut down on their retirement expenses is to pay off your mortgage before you get there.
However, paying off your mortgage is becoming less and less common. The Consumer Financial Protection Bureau (CFPB) found that 30% of homeowners age 65 or older still carried mortgage debt.
Obviously, you could make extra mortgage payments each month and pay it off slowly over time, after you’ve satisfied other smaller debts first.
Sometimes another option is to sell your home and downsize.
This option may take a little getting used to, but if you’re willing, it could be a great way to add to your retirement savings. It will cut down on your retirement expenses dramatically and leave some room for more fun things to be a part of your golden years.
3. Take Advantage of Catch-Up Contributions
One of the best things about saving for retirement in your 50’s is you can take advantage of catch-up contributions. Adults who are 50 or older can put additional contributions into their IRA and 401(k).
You can add an additional $6,000 per year to your 401(k) and an additional $1,000 a year to your IRA. If you’re able to swing the extra contributions, this can make a huge difference to your retirement savings over 15 years. A similar catch-up contribution exists for health savings accounts. Building up your health savings account, if you have one, is a great way to entire retirement with a medical nest egg at the ready.
4. Consult an Expert
Saving for retirement is still possible for you but you have a lot less wiggle room at this point. You’re going to need to get serious about your savings goals and planning with just your spouse may not provide the accountability you need to stay on track.
This is where it can be beneficial to consult an expert. Find a neutral third-party who will tell you what you need to hear and will help you stay on track with your goals.
If numbers aren’t your strong suit, then hiring a financial planner could be one of the best things you ever do for yourself. The Employee Benefits Research Institute found individuals who worked with a financial planner feel more confident in their retirement plans than those who don’t.
Are you currently in the midst of saving for retirement? What strategies have you used to increase your retirement savings? Let me know in the comments!