6 Steps Towards Retirement for the Late Starter
It’s never too late to start saving for retirement. However, if you feel as though you are getting a late start and need to catch up on your retirement savings, here are six things to remember:
- Start Saving Now: The sooner you get started the sooner your money can work for you. Whether it was procrastination or some bad breaks that kept your savings off track to this point, it is not too late to get started. Don’t put it off any longer.
- Pay off your mortgage: Even if you are only a few years from retirement with very little savings, one of the best guarantees for comfort in your golden years is to have no mortgage payment. This will dramatically reduce your living expenses and could allow you to live very comfortably on only Social Security and a little savings. Time the last mortgage payment to coincide with your retirement date if possible by paying additional principal on your mortgage payment every month.
- Delay Social Security: Putting off collecting Social Security as long as possible (no later than age 70) will provide you with the larger benefit. Social Security income is perhaps the best form of retirement income you can receive due to the fact that it is inflation adjusted, tax efficient, and guaranteed by the Federal Government. Thus, the larger our Social Security income is, the more comfortable your retirement. The decision of exactly when to take Social Security should be taken on a case by case basis, however, it is generally advantageous to delay Social Security for the late retirement saver.
- Don’t invest too aggressively: It is a very common error for those who are late in saving for retirement to become too aggressive and “gamble” the little savings they have on a few speculative investments. Although it may not seem like you have much to lose, the truth is quite the contrary. Even a small nest egg can create a relatively decent sum when invested properly for a few years. This sum will be very valuable when you retire and are trying to manage on what you have. A speculation or gamble will almost certainly lead to an eventual loss.
- Don’t be too conservative: The opposite is also true. It is not uncommon for late starters to be too conservative, investing all of their money in cash or money market vehicles. Their fear is that they do not have much and want to protect what they do have. The problem with this philosophy is that the little money they do have will be eroded over time by inflation. A 50 year old with $40,000 should invest in roughly the same way someone with $400,000 would invest.
- Utilize as many tax efficient plans as possible: More than ever, being tax efficient is important when you get a late start on your retirement savings. Utilize 401k’s, Roth IRA’s, and Traditional IRA’s to their fullest extent allowed by law.
- Plan to work just a little longer: Putting off retirement even one additional year has a tremendous impact on your retirement savings. This creates not only one additional year you do not need to live off of your savings, it also is one more year of retirement contributions, account growth, and delay in collecting Social Security. The longer you delay retirement, the faster your retirement numbers swing from scary to exciting.