People starting their retirement savings later must employ strategies tailored to their unique financial situations, including taking an in-depth look at their budget and pinpointing places where expenses can be reduced and savings increased.
Diversifying investments is also essential, and selecting strategies that suit their level of risk tolerance.
1. Work with a Financial Advisor
If you're in your 40s or 50s and have yet to start saving for retirement, it is not too late! The key is recognising that a problem exists and finding an advisor.
Professional help can assist in evaluating investments and creating an investment strategy to suit both your goals and risk tolerance, as well as potentially diversify income sources.
Uncle Sam and your employer provide incentives to get late starters back on track by providing catch-up contributions to tax-advantaged accounts such as an IRA or 401(k). By contributing money here, it will only cost 65 cents on the dollar to contribute!
Other strategies you could try include tracking spending, downsizing to a smaller home and cutting non-essential purchases. You could also choose fuel-efficient models of cars or opt for shorter local vacations instead of expensive international vacations to reduce debt load and free up money for savings. All these steps may help decrease overall debt load as well as free up funds you can put towards savings.
2. Invest in Debt Funds
Establishing a comprehensive financial plan and consulting with an advisor are critical components of reaching retirement, particularly late starters. They should save aggressively, create an emergency fund in case of unexpected expenses, and invest in low-risk accounts in order to maximize returns while mitigating risks.
Early starters must also make sure they take advantage of tax-advantaged accounts to speed their recovery and catch up quickly. One such plan would be employer-sponsored savings plans, which provide tax breaks that allow people to contribute the maximum possible towards savings plans.
Late starters should consider revalorizing their lifestyle expectations and trying to cut expenses so as to free up additional funds for savings. This could involve moving to a smaller home, cutting utility bills or freezing credit cards to prevent unnecessary purchases from being made.
Late starters should make a priority of calculating how much income they will need in retirement and devising a strategy to attain it. This can be done by subtracting their expected Social Security payments and pension benefits from annual expenses to create their estimated retirement budget.
3. Diversify Your Income
Compound interest becomes even more powerful over time, so delayers must find ways to diversify their income sources and invest extra funds as soon as they begin saving. To overcome this lag, late starters must find creative strategies for diversifying income streams and investing extra funds.
As part of your retirement savings strategy, consider engaging in additional income-producing activities or starting a small business that utilizes your talents and expertise. Doing so could significantly boost your retirement savings while providing backup assets should lower-than-expected investment returns or unexpectedly higher expenses arise during retirement.
As part of your retirement strategy, it's also crucial that you invest wisely. Though conventional wisdom suggests equities should be avoided nearing retirement age, exposure to growth assets might still be necessary; thus, targeted retirement funds might provide the ideal way of managing risk as your target date nears. A financial advisor can assist in choosing an asset mix suited for your goals, time horizon and risk tolerance level.
4. Refresh Your Budget
Late starters should have multiple savings mechanisms in place. Directing part of your paycheck into an investment account while stashing extra cash away in high yield savings accounts will give your nest egg the boost it needs.
Refreshing your budget periodically can give you an accurate picture of where all of your money is going, from savings to employer matching programs and expenses you could reduce to create additional savings opportunities. By tracking this data regularly, it may provide clarity as to where money goes - as well as areas you could reduce to free up additional savings money.
Controlling expenses is essential to increasing savings and building up retirement nest eggs. Making changes like buying secondhand, cutting expenses that are unnecessary or prioritizing experiences over things can save significant dollars each month, providing extra funds that you can put toward savings or even debt reduction.
