Ask-A-Planner Q &A: Making Up For Lost Time
Retirement Planning Tips for Late Starters
It can be difficult to make smart financial decisions when you are constantly bombarded with information and financial jargon. That is why it’s essential to make sure the financial guidance you are receiving is unbiased and free of any potential conflicts of interest as you work to improve your financial wellness.
Here, Certified Financial Planner™ professionals at Financial Finesse to address a frequently asked retirement planning question with realistic action steps you can take to reach your Financial Independence Day.
How can I recover from a late start to saving for retirement?
Cynthia Meyer, CFA®, CFP®, ChFC®- Start where you are and avoid the urge to compare yourself with others. If you are “late to the party,” don’t beat yourself up over it. As the late Maya Angelou once said, “When you know better you do better”. The best way to get off to a fast start is to build your financial confidence. Learn everything you can about personal finance -- read books, read blogs (Financial Finesse has two personal finance blogs written by our CFPs®: Financial Finesse on Forbes and Financial Wellness at Work), watch educational videos online. Take advantage of your financial wellness program at work, and attend educational workshops from your 401(k) provider. If you are self-employed or work for a company without a lot of financial education benefits, check out resources at your local library, as well community groups.
You should also find companions for your journey. I recently wrote a blog post on how your friends can help you become financially independent -- about how I improved my own financial wellness by forming a money group with some friends. We’ve launched a website and resources for people to form their own Financial Independence Day groups to learn from, support and encourage each other.
Studies show that peer-to-peer learning helps people learn more information and retain more of what they’ve learned.
Paul Wannemacher, CPA/PFS, CFP®, MBA -The first step is to stop dwelling on lost time and opportunity and determine how far current assets and income will stretch. Once the deficiency is identified, a plan to fund the shortfall can be weighed against and along with alternatives like working longer, working an extra job, or making lifestyle changes to frees up more savings and eliminate debt. Optimizing employer benefits like health insurance and retirement savings, lowering spending budgets to significantly increase investment, and even preparing for “the last job” that accommodates age limitations and personal interests can help those who are underfunded build and preserve resources and keep people happy and socially engaged doing something they enjoy for pay part-time.
Steve White, CFP®, MBA - Retirement can be difficult while trying to balance other goals like paying off debt or sending children to college. There is no shortage of research out there telling us how far behind most Americans are right now. It’s even more frustrating saving for retirement when you're broke.
Don't retire broke.
The reasons why you may not have saved as much in your retirement account as you’d prefer are less important than the things you plan on doing from this point forward.
To avoid retiring broke:
- Visualize what you want to do in retirement and put a picture of it where you keep your debit and credit cards. Every time you pull out your credit or debit card, look at the picture and make sure it's worth it.
- Maximize your company’s retirement plan (401(k) limit is $18,000 or $24,000 if you're over 50).
- If you don’t have access to a retirement plan at work, contribute up to the maximum amount per year to a traditional or Roth IRA ($5,500 in 2015 and 2016 plus $1,000 catch-up contribution for those 50 or older).
- Get training now for a job you can do part-time now and in retirement.
Tania Brown, CFP® - Run a retirement estimate. Even if you know deep down you are behind you still need to have complete awareness of where you actually stand today. A retirement calculator can gauge how prepared for retirement you are based on your specific information and help you make adjustments if you are not.
Brian Kelly, CFP® - Focus on your spending plan now and tomorrow. A budget or personal spending plan is a must-have and best practice financial behavior. Unfortunately, it’s not always easy to follow a budget so that’s why it’s essential as retirement nears to have a solid grasp on where your money is going. Most importantly, you want to tell your money where to go in the coming months and throughout your retirement years. Create a budget plan for retirement to see just how much desired income is needed to meet your life goals.
Kelley Long, CPA/PFS, CFP® - Start seeking out creative income strategies for retirement. Working later than desired or seeking part-time employment are common fallback strategies used by many people unable to retire when desired. In reality, many people reach retirement and find that working later is no longer an option.
There are other ways to maximize your retirement income that don’t involved working. Consider using a reverse mortgage to generate additional income.
Doug Spencer, CFP® - Try to downsize your living expenses. This could involve downsizing your home or completely relocating to another part of the country. You may not want to go to the extreme of living on boat or RV, but the primary idea is to see if there is a way you can lower your housing and other basic living expenses.
Are you interested in more information about how you can take charge of your financial life? If so, visit the Financial Independence Day site to learn more about the book What Your Financial Advisor Isn’t Telling You: The 10 Essential Truths You Need to Know About Your Money.