The general rule of thumb when it comes to saving for retirement is to start early and let the power of compound interest work in your favor. But if you’re like one-third of Americans who don’t have a penny saved for retirement, (1) you may be wondering if it’s possible to catch up in time to enjoy your retirement.
If you have started saving, are you confident that you’re on track? Though financial professionals across the board recommend saving 10-20% of income towards retirement, few people actually do. In fact, an Employee Benefit Research Institute study reveals that 66% of those who have saved have less than $100,000 put away. Thankfully, regardless of how much you have built up in your nest egg, it’s not too late to bulk up your savings and catch up for retirement in a hurry. Here are six steps you can take today:
1. Ramp Up Your Savings
The most obvious thing you can do is save more. Cut back on expenses, channel a healthy percentage of any raises and bonuses directly to savings, and automate savings increases of 1% of your paycheck every few months. It may not seem like you are making much of an impact, but every dollar helps.
Your increased savings can be invested in your company 401(k) or 403(b) plan or your personal IRA. If you are over 50, you (and your spouse, even if only you work) can invest an extra $1,000 per year into an IRA for a total of $6,500 for 2017. The catch-up contribution for those over 50 is even greater for 401(k) and 403(b) plans at $6,000, for a total contribution limit of $24,000. If you’ve managed to max out your IRA and workplace retirement plan and still aren’t saving enough, you can open a taxable brokerage account for your additional savings.
2. Invest For Growth
Your goal retirement date doesn’t have to dictate your investments’ time horizon. You may be retiring in 10 years, but you don’t need to set a 10-year horizon for your investments because you’ll only need a small portion of your nest egg in the early years. The rest of your money may stay invested for another 20 to 40 years. Make sure you invest with the right perspective so you can take advantage of as much potential growth as possible.
One thing to remember, though, is not to try to chase unreasonable returns as a way to make up for a lack of retirement savings. With the proper asset allocation, your portfolio can pursue healthy growth without questionable, high-risk investments. High-risk investments aren’t worth the risk of losing half your money when the next market correction decides to strike.
3. Review Your Insurance Coverage
Insurance is one of those things that most people purchase and then forget about. It would be worthwhile to review all of your insurance policies to ensure that you actually need the coverage you have. Your needs may have changed dramatically since you had a young family and there is no point in paying for something you do not need.
Also, you should make sure that you have Long-Term Care insurance in place once you are over 60. Nothing drains a nest egg faster than living in a nursing home and paying out of pocket. Someone turning 65 today has almost a 70% chance of needing some type of long-term care services, (2) so it is important to consider how long-term care will affect your overall retirement plan.
4. Pay Off Consumer Debt
The less debt you have when you enter retirement, the better. Reducing your consumer debt before retiring helps you lower your monthly expenses and enables your savings to grow and last longer.
Review all current debts you face and compare interest rates and balances. This can help you decide which to pay off first. Once you’ve eliminated credit card and auto debt, see how you can aggressively pay off your mortgage. Not having a mortgage could reduce your monthly expenses by up to a third and make a significant impact on how you spend your savings.
5. Downsize Your Home
As you near retirement, your housing needs will be different than they were when you were raising a family. Many people downsize their homes prior to retirement as a way to reduce or eliminate debt and reduce utility expenses. In addition to the financial benefits of downsizing, a smaller home and yard require less work and cleaning and a one-story home could be much more practical as you age.
6. Put In A Few Extra Years Of Work
There are multiple benefits to delaying retirement or continuing to work part-time during retirement. Here are some of the top reasons to work longer
You Can Save More
The longer you work and the more you earn, the more you can save. Also, working a couple years longer gives your nest egg more time to grow and compound.
You Will Have Fewer Years To Live Off Of Savings
Every additional year that you work is one less year that you will be depending on savings and draining your nest egg.
You Can Delay Claiming Social Security
Social Security retirement benefits can be claimed anytime between age 62-70. However, the longer you wait to file for benefits the greater the benefit you will receive. If you file at age 62, you will only receive 75% of your earned benefit, but if you wait until age 70, you will receive 132% of your earned benefit. This can make a substantial difference in your retirement income for the rest of your life.
How I Can Help
There are a number of options for boosting your retirement savings, but investing, insurance, and Social Security rules can be complicated and confusing. This is why it’s important to turn to an experienced financial professional to guide you as you work to make the most of your money. At Delong & Brower, we offer a comprehensive and coordinated system of services and advice designed to promote financial independence. We strive to do our part to improve your confidence in your financial future. No matter how old you are or how little you have saved, it’s never too late as long as you get started today. Call us today at 616-394-0500 or email firstname.lastname@example.org to schedule a complimentary consultation.
Joel Johnson, AIF® is an Investment Advisor Representative with DeLong & Brower, P. C., a Holland, Michigan accounting, retirement consulting, insurance, and financial services firm. He specializes in providing comprehensive wealth management and retirement plan consulting for individuals, families, retirees, and business owners. Along with more than 15 years of industry experience, Joel is an Accredited Investment Fiduciary®, a Chartered Federal Employee Benefit Consultant, and a Certified Business Adviser/Consultant through Crown Business and Crown Financial Ministry. To learn more, visit www.cpaholland.com.