6 Steps toward Retirement Savings for the Late Starter - dummies

6 Steps toward Retirement Savings for the Late Starter

By Ryan P. Zacharczyk, CFP®, MBA CRPC

It’s never too late to start saving for retirement. If you feel like you’re getting a late start and need to catch up on your retirement savings, here are six things to remember:

  • Start saving now: Whether it was procrastination or some bad breaks that kept your savings off track up to this point, it’s not too late to get started. Make savings a priority.

  • 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. Owning your home can dramatically reduce your living expenses and even allow you to live 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 larger benefits. Social Security income is perhaps the best form of retirement income you can receive, because it’s inflation adjusted, tax efficient, and guaranteed by the federal government.

    The larger your Social Security income, the more comfortable your retirement. Generally, the late retirement saver gains the most advantage by delaying receipt of Social Security income.

  • Don’t invest too aggressively: Those who are late in saving for retirement may become too aggressive and “gamble” the little savings they have on a few speculative investments. Even a small nest egg can create a relatively decent sum when invested properly for a few years. The financial investment can come in quite handy when you retire and try to manage on what you have. A speculation or gamble will almost certainly lead to an eventual loss.

  • Don’t be too conservative: Late starters may be too conservative, saving their money in cash or investing in money market vehicles. Their fear is that they don’t have much, and they want to protect what they do have. The problem with this philosophy is that the little money they 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. The additional time adds not only one more year of retirement contributions, account growth, and delay in collecting Social Security, but also one more year you don’t need to live off your savings. The longer you delay retirement, the faster your retirement numbers swing from scary to exciting.