If you're one of the millions of people in the U.S. who are on the other side of 40 and don't yet have a strong retirement nest egg, don't despair. It's not too late, but you need to take some actions that will put you back on track.
Decide How Much You Need to Retire
Roughly decide how much money you'll need to live on when you retire. Don't get bogged down by conflicting advice on how to figure out the amount. A ballpark figure is a good starting place. Try using a retirement calculator to help you figure out how much money you'll need to have in place.
Figure Out Your Income Sources
Once you have an idea of how much you'll need to retire, run the numbers to see what amounts you'll get from sources other than your savings. For instance, what is your expected Social Security (SSA) benefit for the age you want to retire? Do you or your spouse have a pension from a former or current employer? If you have a 401(k) plan, what do you expect the value to be when you're at the age you want to retire? Use a lower rate of growth to avoid overestimating the amount of money you'll end up with.
Set Financial Goals
Set goals for reaching the amount you'll need to make up the difference between SSA, pensions, and any other funds you already have set aside for when you retire.
Max Out Your 401(k)
If your employer has a 401(k) or 403(b) or other voluntary retirement plan, and you're not already having money put into it from your paycheck, sign up today. Since you're trying to catch up, put in the most money the IRS allows. Keep in mind that you'll be putting pre-tax money in, so that could help soften the blow to your take-home pay. You should review the 401(k) plan limits for this tax year and also consider making "catch-up" contributions if you're 50 or older.
If your job matches a portion of your contribution, that's free money you should never pass up. When you add your employer match to the money you put into your account, you'll have a tidy sum of money for when you retire.
Go for the Roth
In some cases, you can put your dollars into a Roth IRA along with the money you put into your 401(k) or 403(b) plan. The money you put into a Roth IRA is not tax-deductible, but the earnings will be tax-free when you retire since you pay the taxes upfront. The most money you can put into a Roth IRA in 2020 and 2021, if you're under 50 years old, is $6,000. That amount goes up to $7,000 if you're over 50. Assuming a 7% rate of return, the amount of $6,000 a year would grow to just over $288,000 in 21 years.
Don't Be Too Conservative
Even at 45 or 50 years old, you have at least two decades for your retirement earnings to grow. There's still time to invest a large portion of your funds into proven stocks, or, better yet, mutual funds. Just do your research before you make any big decisions.
Consider Moving or Downsizing
If you live in an area with a high cost of living, moving to a less costly area and putting the money you save into your retirement account could make a big impact in your ability to amass a nice nest egg.
If your kids have left the nest and you're still living in a big house that has appreciated, consider selling it and buying a smaller, less expensive home. You'll save not only on your mortgage payment, but in less obvious places like the cost of heating, cooling, insuring, and repairing your home, property taxes, etc. You can sock all the savings away for retirement or use some of them to enjoy your life now.
Take on a Second Job
If you're worried about ever being able to save enough money to retire, you can take on a second job and invest all your earnings towards retirement. Plenty of people also continue to work part-time jobs after they retire.
The IRS knows that some people who are inching closer to the day they retire may not have enough saved up. The tax laws now allow those over 50 to put extra money into 401(k) plans and IRAs so they can do a little catching up as they near retirement age. If you're over 50, it's a great time to catch up.
Pay Off Debt
If you carry high credit card balances and make the minimum payments each month, the money you could be saving for retirement is going straight to your credit card company in the form of interest. Paying only the minimum payment on credit cards is one of the worst money mistakes you can make. Start putting as much money as you can into paying off your credit card balances. Then, once they're paid off, resolve to pay the balance in full each month. You'll be amazed at how much money it frees up for your savings over time.
The older you are when you start saving for retirement, the harder you'll have to work at it. Still, it can be done by buckling down today. Don't let doubt keep you from starting right away, no matter how old you are.