All of us know that building a retirement savings plan from an early age is our best bet to grow our money and provide a regular income post-retirement – thanks to the power of compounding! However, one may not necessarily have the cash flow needed to make retirement investments due to poor financials, the responsibility of a big family, emergency expenditures, or a withering career. Let these 7 Retirement Planning Strategies for Late Starters guide you toward a comfortable retirement.
If you have happened to realize the importance of saving for retirement at 50, fret not, for you are not alone. It turns out, only 43% of American workers take part in a retirement-savings plan. Starting late may be difficult but it isn’t a lost cause as there are enough means and ways to still save up for an easy retirement.
- How to Catch Up on Your Retirement Planning? 7 Retirement Planning Strategies for Late Starters
How to Catch Up on Your Retirement Planning? 7 Retirement Planning Strategies for Late Starters
Understand that the best time to start saving is as soon as you have the realization of retirement planning. There are multiple options available from contributing to your 401(k) to opening an IRA. All you need to do is develop the mental discipline and make the most of your money to grow your retirement fund.
1. Concentrate On Starting Today
Instead of taking bigger risks, start investing as soon as possible to take advantage of compounding interest for maximum returns.No doubt, the best time to start saving was 10 years ago, but the second-best option available is to start saving today.
By doing so, you will be increasing the ability of your assets to generate earnings which can be reinvested to generate further earnings. Therefore, the earlier you start, the better off you will be at growing your retirement savings.
2. Plan a Retirement Budget
Taking into account your current and future expenses along with the inflation rate, you can work out how much cash you will need to survive the twilight years of your life comfortably.
Once you have an amount in mind, you will understand how aggressively you need to start saving for retirement. Ideally, you should have enough money to last you for 30 years post-retirement.
3. Contribute to Your 401(K)
Offered by employers, a self-directed 401(k) works like a private pension plan sponsored by your business. It is automatically deducted from one’s salary and an equal contribution is made by the employer. 401(k) also gives you a tax break as you contribute pre-tax money towards it. So, you can invest a higher portion of your income without exhausting your monthly budget.
The contributed money is invested in available funds of your choice such as real estate, precious metals, private placement money lending, etc.
4. Establish an IRA
Setting up an individual retirement account (IRA) can be a great tool in growing your retirement fund. A self-directed IRA gives you more control over your investment as it is directly managed by the account holder.Plus, you can invest in alternative assets such as gold, LLCs, real estate, and more.
IRA can be either Traditional or Roth. The contributed amount in a Traditional IRA is tax-deductible, whereas the one in Roth IRA is not tax-deductible under certain conditions. So, you can opt for an IRAdepending on the tax bracket you fall in.
5. Use Catch-up Contributions to Your Benefit
If you are 50 or older, you can take advantage of catch-up contributions.
Saving for retirement at 50 becomes easier as you have the power to exceed the limitations of the yearly contributions to your IRA and 401(k). Thus, you can boost your retirement savings if you haven’t been able to save up as much as you wanted to.
6. Decide When to Claim Social Security
One of the most important retirement tips is to avoid claiming Social Security too early if you want to enjoy its maximum benefits in your full retirement age.
Unless you are in desperate need of funds, you can wait at least until 66 or 67 years as benefits increase by approximately 8% for each year that you delay claiming Social Security after the full retirement age.
7. Sort and Eliminate All Debts
Whatever debts you may have, it is time to eliminate them as quickly as possible. Else the interest rate on the debt amount will drain your accounts leaving nothing to save for your retirement. By consistently paying off all debts, you can put the money that you would otherwise use to pay interest in some form of an investment plan.
Starting retirement planning late is hard work, but it’s not impossible. By staying focused on budgeting, contributing to 401(k), opening an IRA, paying off all your debts, and avoiding common retirement planning mistakes; you can set yourself on a path to retiring stress-free!
About The Author: Rick Pendykoski is the owner of Self Directed Retirement Plans LLC (www.sdretirementplans.com), a retirement planning firm based in Goodyear, AZ. He regularly writes for his own blog of Self Directed Retirement Plans and as a guest blogger to many sites in the niche of finance. He can be reached at firstname.lastname@example.org.
Opinions expressed by contributors are their own.
Read related: Retirement Fund – 401(k) Mistakes To Avoid
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