When trying to build a nest egg for retirement, it’s better to start setting aside money as early as possible. It will be easier and you’ll save more in total when you begin saving while you’re young.
However, we all know that financially preparing for the future is easier said than done, which is why many don’t start retirement planning until reaching their 40s or 50s.
The good news is, it’s never too late! Even in a shorter period, it’s still possible to build a retirement fund that will help you live a comfortable life as a retiree.
Here are tips on how to save for retirement if you’re starting late in the game.
1. Determine how much savings you’ll need
First, you need to determine how much you’re going to need to live a stable life when you’re no longer working and earning consistently.
What type of lifestyle do you want to live in the future? Do you want to travel to different places or spend more time with your grandkids? Maybe you’re thinking of opening a small business?
Whatever your plans are, sustaining any kind of lifestyle requires money, oftentimes more than what you thought you’d need. You might tell yourself a million in the bank is enough, but even the most modest of lifestyles can require millions after you stop working.
According to financial planning experts, you should withdraw no more than 3-4% of your retirement savings each year during your retirement.
Take this as an example: if you want to live on an annual income of $30,000 per year, then you’re going to need at least 1 million in retirement funds, assuming you don’t have a pension and other streams of retirement income.
2. Settle your debt
Debts, no matter how small or big they are, weigh you down financially. Saving for retirement in your 40s and 50s is challenging as it is, so eliminating your debts first will make things easier.
The interest rates that accumulate over time will hurt your pockets, making it harder to put away money for your retirement every month.
From credit cards to mortgages, think of a strategy to erase them as quickly as possible. There’s one popular method called the “snowball method,” in which you pay off the debts with the highest interest rates first and then work your way downwards.
Once your largest debt is paid in full, then it will be relatively easier to pay off small debts with low interest rates.
3. Consider downsizing and cutting costs
Your needs when you’re younger are entirely different from your needs as a 50-year old.
We all dream of owning huge houses and fancy cars when we’re younger, but when you’re close to retirement, none of these matter anymore. At this age, it makes sense to downsize if it means being able to set aside more for your retirement.
For example, living in a large home may become more of a hassle than a source of joy as you grow older. Maintaining a massive property requires huge money (and a lot of energy), which could’ve gone straight to your retirement funds.
Cars are no exception when cutting costs! Think about switching to a more practical, cost-efficient vehicle if possible to help you save a little extra cash.
Minimising as many expenses as possible will free up additional cash that you can squirrel away in retirement savings.
4. Stay on the job longer
Retiring later may not seem the best financial planning advice, but it ultimately works if you’re a bit behind the eight ball.
Many people expect to throw in the towel by the age of 60, but staying on the job for a few more years can help with your retirement savings.
Obviously, there are financial benefits. Your nest egg will have extra time to grow and accumulate gains before you finally tap out of work.
Any extra years of working are years that you don’t have to depend on your retirement savings, which means they won’t dry up as quickly.
On top of that, retiring later than usual gives you purpose and motivation to get out of bed and do something with your day, which retirees miss the most.
5. Buy adequate insurance
Unexpected emergencies are almost always the reason for personal bankruptcies.
By buying adequate health insurance and disability insurance, you’re reducing the risk of being forced to spend life and retirement savings on emergencies that an insurance policy would have covered.
If you have dependents, consider getting term life insurance that covers the entire duration that your loved ones depend on you financially.
Preparing for a comfortable retirement
The truth is, retirement planning in your 40s or 50s is more challenging than when you’re younger, but it doesn’t mean the odds are stacked against you!
By following the steps we’ve outlined here, you can improve your chances of having a secure, comfortable retirement.
If you want more tips on how to save for retirement, or simply need financial planning tips, feel free to reach out to us! We can connect you with experienced financial advisors who can help you achieve your dream retirement life.