It’s Never Too Late To Build Your Retirement Nest Egg
Starting retirement savings later in life can feel daunting, but it’s far from impossible. The best advice is to start early, but in reality, life may not allow for this, or one may have simply let time slip away. Unfortunately, a staggering number of people do not start saving for retirement until midway through their careers. Not all is lost, as there is still a decent amount of time and various strategies to secure a comfortable, well-planned retirement.
Here are five steps to consider for those starting later in life.
1. Evaluate Your Monthly Budget For Savings
Subscription services, streaming platforms, and other memberships can quietly drain your finances. Many people also overlook opportunities to cut costs on essential bills, potentially saving thousands per year. Taking the time to review monthly expenditures is key to finding additional funding for retirement, paying down unnecessary debt, and increasing retirement savings.
2. Good Debt Vs. Bad Debt
Once the monthly budget has been addressed and savings found, knowing where to put the additional funds is the next step. Being debt-free is advantageous in retirement; however, the parameters of the debt should be taken into account.
High, unsecured debt, such as credit cards outside of introductory offers, is considered bad debt and should be paid off aggressively. There are two schools of thought in debt repayment: the snowball method and the avalanche method. In both, excess money is paid toward one loan, and once paid off, the entire payment goes to the next loan in line.
- Snowball Method: Focuses on paying off the lowest balances first. This approach frees up cash flow faster than the avalanche method.
- Avalanche Method: Prioritizes paying off high-interest debt first, which saves more money in the long run.
Secured, low-interest-rate loans, such as a mortgage, are typically considered good debt. Depending on the structure of the loan, paying down good debt is typically secondary to retirement savings.
3. Understand Various Retirement Savings Strategies
Retirement savings come in many shapes and sizes. Typically, an employer-sponsored retirement savings plan is the best vehicle to utilize. Offering higher contribution limits and catch-up provisions, along with traditional, Roth, and after-tax components, allows individuals to save aggressively while still having a decent amount of time to take advantage of compounding interest. These benefits are specific to each employer-sponsored plan, and reaching out to a benefits coordinator will increase knowledge of the plan.
Non-employer-sponsored retirement savings do not offer as high of a contribution limit; however, they do provide a more diverse investment platform. Similar to employer-sponsored plans, traditional and Roth components are available to not only establish retirement savings but also assist in tax savings strategies.
Regardless of the accessibility of an employer-sponsored plan, it is paramount to contribute as much as possible when starting the journey later in life.
4. Sideline Emotion When Investing
Investing can feel overwhelming, especially when starting late and feeling behind. However, focusing on short-term market fluctuations will quickly derail long-term financial goals. Establishing a comfortable risk tolerance allows an individual to stay invested during an inevitable market correction. Making sound financial decisions based on facts instead of emotional responses increases the potential success of a financial plan.
5. Stay On Track by Keeping Goals Front of Mind
A common, often overlooked downfall of retirement is not finding constructive ways to spend the increased free time. Taking a moment to realize what is important during retirement helps establish clear financial goals. Furthermore, determining how retirement will be spent increases the discipline needed to stay on track for retirement planning.
Will time with family be the top priority? Travel? A new hobby? Starting a new business? With limitless options available during retirement, having tangible goals increases motivation, which increases the likelihood that those goals are met.
Final Thoughts
With pensions becoming a thing of the past, saving is the single most important step toward a financially secure future. While starting early is ideal, simply starting is key. Having a realistic plan to pay down bad debt and increase retirement contributions while maintaining a disciplined and motivated approach assists those starting later in life.
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