Retirement Planning for Late Starters | An 8-Step Guide
Many people don’t start planning for retirement until well into their 40s and 50s. If that sounds like you, don’t worry. You still have time to save.
If we could tell our younger selves anything, a lot of us would say to begin saving money for retirement earlier in life. But it doesn’t always work out that way.
Let’s go over some top retirement planning tips for late starters. We will show you how to confidently begin saving and how it will surely make a difference.
Retirement Age in the US
The age at which a person retires can depend on many things, like social security, pensions, health, and personal preference. The average in the US is around 64, although it varies greatly from state to state.
For instance, people in Alaska tend to retire at 61, while people in Washington, DC, wait until 67. Ultimately, only you can decide what’s right for you.
Is 40 too late to Start Planning My Retirement?
No, 40 is definitely not too late to start planning for your retirement. You still have time to build a secure future for yourself if you act wisely.
The smartest thing you can do is cut extra spending and start investing 10-20% of your income. Also, if your employer offers any benefits like a 401k, take advantage of them. And don’t make the common mistake of thinking social security will be enough to cover everything.
How to Start Retirement Planning Later In Life
The idea of preparing for your later years might make you feel a bit overwhelmed. Where do you even begin? First, you should start by tackling the following topics.
1. Determine Your Retirement Needs
Many people vastly underestimate how much they will need when they retire. Your first step should be to calculate your costs to the best of your ability. Try adding up your current monthly bills and see where you think they might change.
Consider what your lifestyle is going to look like. Will you get social security, and if so, how much? Perhaps you will want to travel more. Or, you may want to start paying someone to do your landscaping.
2. Eliminate Debt ASAP
The last thing you want when you retire is debt. One of your top priorities should be eliminating as much of it as possible so you can put your money towards saving. High-interest debt is especially detrimental to hitting your goals.
One popular method is to take baby steps. Start with the smallest debt you have and pay it off first. Move on to the next and the next until you are debt free.
3. Set Goals and Hit Them
Set investment goals for yourself each month or year. They don’t have to be huge but will help you save in the long run.
The more information you have about your finances, the better you can plan. Portfolio management software gives you a clear picture of your progress. It lets you access, organize, and track all your savings and investments in one easy-to-use application.
4. Create a Budget and Save Everything You Can
If you haven’t already, sit down and analyze every aspect of your spending. Are you being a bit more frivolous than you ought to be? Sometimes we aren’t totally honest with ourselves regarding where our cash goes, and other times we aren’t even fully aware of our habits.
Create a realistic budget for yourself. Still allow some room to have fun, of course, but see where you can start to shave a bit off the top each week. Even saving a little will add up over time.
5. Downsize for Easier Maintenance
Many people hold on to homes too large for them once the kids have left the nest. If this applies to you, it might be time to buy a smaller home. Will you want to stay in that 5-bedroom, two-story Tudor with a lawn in your golden years?
Not only is the maintenance of a big home a lot of work, but it also costs money. A smaller house or condo will be easy on your wallet and your back. Plus, you can put any profit from the sale into your retirement portfolio.
6. Determine Where to Retire
Besides the location and the weather, there are a few other factors to consider when deciding where to retire. Will the cost of living be more or less than where you currently live?
State and local taxes can also affect your funds. There’s a reason Florida is so popular. Not only does it have some of the country’s best beaches, but it also has low taxes.
7. Determine When to Retire
It’s safe to say retiring young is probably everyone’s dream, but unfortunately, it isn’t a reality for most. The minimum retirement age to collect social security is 62. However, if that’s when you start receiving benefits, you will get around 30% less than if you waited until the full retirement age of 67.
Also, working for longer will allow you to save more before you have to start pulling from your investments.
8. Learn How to Pull Out Your Money the Right Way
Taking money out of your retirement account early is counterintuitive. While circumstances sometimes leave you no choice, you should avoid premature withdrawals if possible.
Why? Well, there can be associated fees if you do. For example, if you pull from your IRA before the age of 59.5, there is a 10% penalty on your withdrawal, plus income taxes.
Tips for Late Career Retirement Planning
Now that you know how to formulate a plan, let’s review some additional tips to help you along the way.
Use Catch Up Contributions
Catch-up contributions allow people 50 and older to put more money in their 401ks and IRAs. For example, the limit for 401ks is $22,500 in 2023, but if you’re above 50, you can put an extra $7,500 in there. If you can, you should take advantage of the opportunity.
Use Your Equity
If you’re not planning on selling your home, you may want to consider leveraging your equity by taking out a reverse mortgage. It allows you to access the value of your property. While this can get a bit more tricky than it sounds at face value, it is always an option.
Have More Than Just a 401k
Your 401k, pension, or social security benefits just might not cut it. A lot of people find a side hustle to help supplement their retirement. It might be the perfect time to find something you enjoy doing a few times a week, like tutoring kids or teaching piano lessons.
Consider Hiring a Financial Advisor
Hiring a financial advisor is probably one of the most helpful things you could do when planning retirement, especially if you’re a bit behind. They will help you develop a budget, help you clear your debt, and formulate a plan tailored to your specific needs.
It’s Never Too Late to Save for Your Future
The most important thing to remember is it’s never too late to begin planning for retirement. With that being said, also don’t wait.
Start doing what you can now, whether it’s saving an extra $20 a week or organizing your assets in a portfolio tracker like StockMarketEye. Every step brings you closer to a more secure and successful retirement.