How To Save For Retirement If You Started Planning Late
At some point, you will find yourself you are already in your 40s with children who will be having their own kids soon — and still with no savings at all. You then realize that you should have started saving for retirement earlier. But not all hope is lost just yet. If you did not bank on retirement earlier, there is still a lot that can be done to fix your situation.
Assess If You Are Financially Ready for Retirement
When you are aware of your financial readiness, you can determine if you have a projected shortfall if you need to modify your retirement strategies, goals and objectives. To get started, you will need to gather the balances of your accounts, your income tax rate, the average rate of return on your savings and other relevant financial information.
If you had signed up for a defined benefit plan, your administrator or employer should inform you of your projected income from your pension. The results can show you if you have a shortage in your retirement savings or not. If you find out that you are lagging behind, do not be alarmed. It only means that some changes would have to be done to your financial planning strategy.
Convert Non Earning Assets into Retirement Savings
If you have found out that you have already done all that you can to boost retirement savings and still find yourself short, there is still a lot that can be done. When you convert your big assets into retirement savings, you establish a good starting point. Most of the time, your biggest investment will not be your home.
You can downsize your home to a smaller and less expensive house. This can create a win-win situation for your savings since you increase investment income while eliminating or reducing expenses such as utilities and mortgage. You can also relocate to a place where the cost of living is cheaper.
If you happen to be past 40 with absolutely nothing in savings, do know that you are allowed by law to save $17,000 per year in a 401k retirement fund. That money can go a long way because if it has a 7 percent rate of return, your 401k can grow to $1 million in 24 years and 2 months. This means that even if you started pretty late, you can still have $1 million in the bank by the time you are 64.
However, you will need another seven years to have an inflation adjusted $1 million by the time you are 71. A lot of retirees work until they are 70 so this looks like a very feasible goal.
Eliminate or Reduce Risk
Getting into riskier investments looks exciting and, truly, a lot of people who have started planning for retirement late have done this with success. While this might be a feasible measure to make up for lost time, the potential for loss is also much higher. At this point, you do not really have room for failure because you are already catching up.
Your risk should also be inversely proportional to how much time you have left before you retire. While people who are still in their twenties can still accept greater losses — because they still have a lot of time to recover — those who started out late might not have all that time and resources to do so.
Put Yourself and Your Spouse First
Do not scrimp on retirement savings just so you can send your kids to a good college. Your kids have a lot of opportunities and options than you do since they can take on a student loan or even get scholarships. You, on the other hand, cannot take on a retirement loan or an equivalent for scholarship for a loan.
Your children are young and they still have their entire lives ahead of them. They have a lot of time and opportunities. Meanwhile, you do not have a lot of time and your career is already concluded. Your kids can learn from you and can start saving as soon as they are out of college, while you are already catching up.
Your kids will be adults, too, and they can stand on their own feet. They would better appreciate it if they learn how to fend for their own while you do not have to depend on them for anything in late life. Do you agree? Share with us your thoughts in the comments below.
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