There are many things we know we should do because they’re good for us, such as flossing daily, exercising regularly, and avoiding stress. But, when daily life gets in the way, those things can easily fall through the cracks.
If you’ve put saving for retirement on the back burner, here is some good news: It’s never too late to start. And it’s never too early, either.
There are reasons why retirement planning is a touchy subject. In Northwestern Mutual’s most recent Planning & Progress Study, an annual survey of national attitudes and behaviors about money, they found that 22% of Americans have less than $5,000 in retirement savings, and 15% have no savings at all. That’s actually an improvement from the previous year.
But this isn’t about guilt trips or alarm bells. This is about starting or improving your retirement strategy so you will be financially set for the long term.
While strategies will change depending on your situation, retirement planning is all about looking to the future. For that, there’s no better time than the present.
Why it’s never too late
If you’re in your 50s and don’t like what you see in your retirement account, consider these course-correcting steps.
- Make your 401(k) your savings priority. If your employer offers a 401(k) or 403 (b) plan, participate, or up your participation if you’re already involved. If there’s an employer matching contribution, try to contribute up to that amount. Matching contributions are meant to incentivize savings, so take advantage: It’s free money in your pocket (actually, in your retirement savings account). And because your contributions are pre-tax, you'll see additional benefits when tax season arrives.
- Take advantage of the IRS catch-up contribution. Believe it or not, the IRS is on your side, at least when it comes to your retirement. The annual limit for tax-free contributions to 401(k) and similar plans was raised to $19,500, and those over 50 can contribute an additional $6,500, up from $6,000 in 2019. Those 50 and older can also make an extra $1,000 tax-free IRA contribution on top of the $6,000 annual cap. See the IRS website for specific catch-up contribution details.
- Consider extending work and delaying Social Security. If you always envisioned retiring at a certain age — say 65 — it may be worth rethinking that. Start positioning yourself now for work you would enjoy doing for a few years after your current job. Retired workers are increasingly valued as consultants and mentors. If that interests you, lay the groundwork now. At the same time, consider delaying taking your Social Security benefits. Every year you delay until age 70, your benefits increase by 8%. If you do take on a “post-career” job, you may find that 8% ROI enticing and doable.
- Rethink your financial commitments. This may be difficult, especially when it involves those close to you. For example, you may have always intended to pay for your child’s college education. But, the truth is, your children have a lifetime to pay off (a reasonable amount of) student loans; your timeframe for retirement security is a lot shorter. Some more good news: There’s currently a lot of discussion about college affordability and free tuition, which could help make this decision easier.
Why it’s never too early
It’s tempting to think that younger generations have it “easier” when it comes to retirement savings. Time is certainly on your side if you’re in your 20s. But that luxury can also be a disadvantage if it leads to procrastination. Instead, keep these guidelines in mind.
- Get in the habit. Most of us are creatures of habit. The challenge is to develop more good ones than bad ones. If you get in the habit of saving for retirement early on, you’ll increase the chances that you’ll stick with it throughout your working life. As with older investors, take advantage of 401(k) plans and employer matching contributions. With your longer investment window, you’ll benefit from the compound interest — interest on top of interest — that can turn modest lifetime savings into a secure retirement nest egg: Annual savings of $4,500 over a 45-year career can turn into $1 million in retirement. With an employer match, you could save as little as $2,250 a year to reach that goal.
- Make it automatic. Use automatic payroll deduction to support your good habit: If you don’t see the money, you won’t miss it. At the same time, add to your retirement contributions as your salary increases, a benefit to your retirement and your tax bill.
- Reassess your investments. Regular, automated investing isn’t the same thing as neglected investing. Being a life-long investor means that your life circumstances will change, and your financial priorities and risk tolerance will change along with it. Set up regular intervals to make sure that the investments you have match your goals and situation. Consider engaging a financial advisor as your wealth increases.
- Resist temptation. One downside of investing early is that there will be more instances where you’ll be tempted to use your retirement savings for some other purpose. There may be severe cases where that becomes necessary. In all other cases, just say no.
Why you should start now
Because something made you read this post, and you’re older now than when you started reading it.
Because you deserve a great life in retirement.
Because it won’t be any easier tomorrow.
If you need additional motivation, consider contacting an advisor who specializes in retirement planning. Like working with a personal trainer, the support of a professional can be what we need to get us to where we want to go.
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