Retirement Planning: What to Do When You're a Little Late to the Game



Ideally, you’ll start saving for retirement in your 20’s. If those golden days are long past, however, there’s no need to despair. There are several strategies that you can use to catch up later in the game and supplement your weak or non-existent retirement funds.

Find Out How Much You Need

The average American spends 20 years in retirement, and may need anywhere from 70 to 90 percent of his pre-retirement income to support his standard of living. Many factors come into play, however. For example, if you own your home you’ll have much lower living expenses to contend with. Do the math to decide how much you will need annually to sustain your preferred standard of living. Use your current living expenses as a guide instead of assuming that you’ll happily live on a shoe string in your old age.

Cut Your Expenses and Live on Less

In order to build healthy retirement funds, you need to free up a significant amount of cash. You may have a late start due to years of extra schooling, big medical bills, or the cost of raising kids. Do what you can now to decrease your expenses. Whether your strategy is as small as eating in and not out several times a week, or as large as downsizing to a smaller home, it will free up funds for the next steps. Paying off credit card debt is essential in any situation.

Begin Contributing to Your Employer’s 401(K)

Only about 30 percent of industry workers with access to a contribution plan like a 401(K) actually contributed to it in 2010. Don’t fall into this sad majority. Contribute as much as you can to your company’s 401(K). In 2012, the maximum contribution was $17,000. After age 50, you’re eligible for catch-up contributions of up to $22,500 a year. At the bare minimum, give as much as your employer will match to make the most of this great opportunity.

Contribute to an IRA

You can put up to $5,000 a year into an Individual Retirement Account (IRA). If you’re over the age of 50, this amount increases to $6,000. With a traditional IRA, your contributions are tax-deductible within income limits, but you pay taxes on your earnings when withdrawn. In a Roth IRA, the contributions are not tax-deductible but the earnings and principle are tax-free. To be eligible for a Roth IRA, single-filers can make up to $95,000 a year, and married couples may earn up to $150,000 a year.

Invest the Rest

If you have more funds available, invest them in a diverse portfolio. A range of stocks and bonds will help you grow your remaining funds for retirement. Keep an emergency fund on hand, but invest every extra penny that you can afford. If your money isn’t poised to grow in the coming years, it’s not in the right place.

Start learning about retirement funds and investments now with resources like Fisher Investments Educational Videos. The more you know, the better equipped you’ll be to cut your spending and put your money where it counts for a long and enjoyable retirement.



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