7 Retirement Planning Strategies for Late Starters

Retirement Planning

Retirement planning is a vital part of financial planning. It can help ensure you live a comfortable and financially secure retirement and should ideally be started as soon as you begin your career. Unfortunately, not many people pay attention to retirement planning during their younger years. For those who start late, the task of catching up on retirement savings can be daunting. Late starters face the challenge of having less time to save and invest for their future. They may also feel burdened with having to save for multiple goals together, such as retirement, their children’s higher education, healthcare, and other similar expenses. However, it is never too late to get control of your finances and plan for your retirement. 

financial advisor can help you understand how to save for retirement in your 40s, 50s, and beyond. This article will concentrate on some effective retirement planning strategies for late starters to help you catch up and achieve your retirement goals.

Here are 7 retirement planning strategies you can consider:

1. Define your retirement goals by assessing your current financial situation

The first step towards retirement planning is assessing your current financial situation. While you may be late for retirement, you would still have some assets and savings. In addition to this, you may also have loans, insurance premiums, and other expenses. You need to take stock of your finances, including all your assets, debts, and monthly expenses.

Knowing how much money you have available to save and invest for retirement is important. You can follow the steps given below:

1. Calculate your net worth: Your net worth at any given time is the value of all your assets minus all your liabilities. You can consider assets like cash, real estate, retirement accounts like the 401(k) or the Individual Retirement Account (IRA), stocks, etc. Your liabilities can include debt, bills, etc. This will give you an idea of how much you have to work with.

2. Track your expenses: Next, you need to track your monthly expenses to determine how much you can save each month. For instance, take a look at your rent, gas, groceries, travel and entertainment expenses, and others. This will help you to identify areas where you can cut back on expenses.

3. Determine your retirement goals: It is important to have a clear understanding of your retirement goals. This can include the age at which you wish to retire and the lifestyle you want to maintain during retirement. For instance, think about the city you wish to settle in, the kind of house you want to live in post-retirement, the kind of lifestyle you wish to pursue in retirement, etc.

2. Maximize your retirement contributions

Late starters need to maximize their retirement contributions to catch up on their retirement savings. There are several retirement accounts available, including 401(k), IRA, etc. A 401(k) is a retirement savings account offered by employers. Late starters should aim to contribute as much as possible to their 401(k) accounts. You should also take advantage of any employer-matching contributions to maximize your contributions. If your employer does not offer a 401(k), you can use an IRA. An IRA is similar to a 401(k) but is not employer-sponsored. It can be opened by anyone. You can choose between a Roth and Traditional IRA. A Roth IRA is similar to a Traditional IRA, but its contributions are made with after-tax dollars, whereas the contributions for a Traditional IRA are made with pre-tax dollars. Roth IRA offers tax-free withdrawals, while a Traditional IRA’s withdrawals are taxed in retirement. You can consider opening a Roth IRA if you expect to be in a higher tax bracket during retirement or use a Traditional IRA if you prefer saving tax now.

If you are wondering how to invest for retirement at age 50, you can also consider taking advantage of the catch-up contributions of these accounts. The Internal Revenue Service (IRS) sets the annual contribution limits for 401k and IRA accounts. The contribution limit for 2023 is $22,500 for 401k accounts in 2023. The catch-up contribution limit for those aged 50 and older is $7,500. The contribution limit for 2023 is $6,500 for Traditional and Roth IRA accounts. The catch-up contribution limit for those aged 50 and older is $1,000.

3. Invest your money wisely based on your age

Late starters need to invest their retirement savings wisely to achieve their retirement goals. Since you now have limited time to build your retirement pool, you need to be more careful in selecting your investments. The room for error is greatly reduced, which makes it essential to keep a balanced portfolio that includes stocks, bonds, and cash. Stocks provide the potential for high returns but also have a higher risk. Therefore, investing in a diversified portfolio of stocks is important to minimize your risk. You can invest in large-cap stocks and diversify your stock portfolio on the basis of geographies and industries. Since your risk appetite would be lower in the later stages of your life, such as your 40s, 50s, and 60s, you must balance out market volatility by investing in bonds. Bonds are a more conservative investment option as they provide a fixed income. Investing in bonds can provide a steady income during retirement. It is also important to keep cash for emergencies. Cash provides stability and liquidity, but it also has a lower return. Nevertheless, keeping some of your retirement savings in cash for emergencies and short-term needs is essential.

In addition to this, you must also consider building assets, such as real estate, etc. These can offer a hedge against stock market volatility and help you diversify more. Hiring a financial advisor can be advisable if you need help understanding how to invest for retirement at the age of 60, 50, 40, or even earlier.

What is the recommended retirement savings at every age?

You can roughly save in the following amounts based on your age:

Age

Recommended retirement savings

30-35

One times your annual salary

35-40

Two times your annual salary

40-45

Three times your annual salary

45-50

Four times your yearly salary

50-55

Six times your yearly salary

55-60

Seven times your yearly salary

60-65

Eight times your yearly salary

after 67

Ten times your yearly salary

 

4. Delay retirement or work part-time to meet your retirement savings target

Late starters may need to delay retirement or work part-time to catch up on their retirement savings. Working longer can provide additional income and allow you to continue saving for retirement. You can save more money, increase your Social Security benefits, and potentially receive a larger pension. Additionally, continuing to work can provide you with a sense of purpose and social interaction, which can help you lead a healthy life and potentially lower your health expenses, allowing you to save more. Further, you can get more out of your employer-sponsored plans, like the 401(k). The longer you work, the more you can contribute and the more you can receive in employer contributions.

You can also consider working part-time during retirement to supplement your income. This way, you will not have to work full-time but can still find a way to earn additional time for your retirement savings to grow.

5. Pay off your debts at the earliest

Debt can hold you back on your journey to retirement financial freedom. This is why it is vital for late starters who are behind on retirement planning to eliminate debt as quickly as possible. The longer you carry debt, the more interest you will have to pay, which can erode your retirement savings over time. You can start by paying off debt with the highest interest rates first, such as your credit card dues, personal loans, mortgages, etc. If you have multiple credit cards and loans with high-interest rates, you can consider consolidating them into one loan with a lower interest rate to save money and pay your dues faster. You must also avoid taking on new debt and live within your means. Creating a budget can help you with this. A budget gives you a clear view of where your money is spent each month. This way, you can identify areas to cut back. You can download a budgeting app to track your spending and set realistic financial goals.

6. Consider downsizing to lower your expenses

Downsizing can be an effective strategy for catching up on retirement savings. Downsizing refers to the process of reducing your living expenses by moving to a smaller or less expensive home. Downsizing can reduce expenses such as mortgage payments, property taxes, utilities, and maintenance costs. You would pay less on home maintenance and be able to lead a simpler lifestyle. It can free up more money to contribute to your retirement savings and reduce the amount of income needed during retirement. If you downsize before you retire, you will have additional money to invest for retirement. The proceeds from selling a larger home can be used to pay off debts, build an emergency fund, or invest in a retirement account.

Downsizing can also offer other benefits, such as the opportunity to move to a relatively more affordable state or location. You can also move closer to family and friends and spend less on traveling to meet them. However, in order for you to benefit from downsizing, it is essential to carefully evaluate the financial implications of your decision, pick a suitable property that will help you cut back on your expenses, and consult with a financial advisor to determine the right time to make the transition. Hence, you get a reasonable price on your present home.

7. Hire a financial advisor to get personalized advice

Late starters may panic and make wrong decisions that can compromise their future financial security. Saving for retirement at 50 and beyond can be particularly tricky, with retirement just around the corner. A financial advisor can bring in the much-needed perspective at this time. They can help you understand how to create the best retirement portfolio for your age and minimize the scope of errors. For instance, the best retirement portfolio for a 60-year-old will likely have more conservative options like bonds, annuities, retirement accounts like the 401(k) and IRA, and some stocks to maintain a 60-year-old’s conservative risk appetite.

How much money should you save for retirement?

The amount of money needed to retire varies greatly depending on your circumstances and individual preferences. Your lifestyle, health, and desired retirement age will ultimately determine what your retirement pool should look like. Generally, financial advisors recommend savings up to at least 70%-80% of your pre-retirement income to ensure you lead a similar lifestyle in retirement and, at the same time, can cater to any unexpected and unplanned costs like healthcare, home renovation, debt, etc. 

It is important to consider your lifestyle needs and factor in the effects of inflation while saving for your retirement. While there is no specific amount you can follow, online retirement calculators can help estimate how much money you may need in retirement. These calculators take into account different factors such as your age, income, savings, expected retirement age, and other similar details to provide a rough estimate of your required savings.

Seeking the advice of a financial advisor can also help determine the appropriate retirement savings goal and to create a personalized retirement plan that accounts for your needs and goals. 

To conclude

While it is never too late to start planning for retirement, late starters certainly face some challenges. The stress and anxiety can also be hard to deal with as your retirement approaches. At this time, it is better not to panic and instead use these strategies to catch up and secure your financial future. Focus on creating a budget, eliminating debt as quickly as possible, working more, saving more, and investing more prudently and consistently.

You may also consider using the free advisor match service to get matched with a financial advisor. All you have to do is answer a few simple questions based on your financial needs, and the match tool will help connect you with 1-3 advisors best suited to help you.

To learn more about retirement strategies that are suited to your specific financial requirements, visit Dash Investments or email me directly at dash@dashinvestments.com.

Sincerely,

jonathan dash

Jonathan Dash
Founder and President
Email: info@dashinvestments.com