Sometimes, it seems as though personal finance advice is all about what you should have done. But we’re all able to easily identify the mistakes we’ve made in the past. The important advice is what you should do to correct those old mistakes. Shoulda coulda woulda is singularly unhelpful in those situations.
This is particularly true when it comes to retirement savings. If you’ve already received your AARP card and still have not started putting money aside for your retirement, those charts showing how much compound interest will earn you if you start saving in your 20s are depressing at best.
But workers in that situation can’t afford to wallow in their “if only!” feelings, even though they might want to. Instead, they need to make a plan for the next 15 to 20 years:
1. Start putting money aside right this minute. It doesn’t matter if the amount of money you think you can afford to save is relatively low. Just putting some money into a retirement account is a step in the right direction. If your employer offers a 401k retirement plan, make sure you at least save enough to qualify for their matching contribution. It may not seem like much, but you’ll be very glad of the extra padding to your account once you start seriously thinking about retirement.
2. Downsize. If the amount that you are putting aside is not sufficient to keep you comfortable in retirement, then you need to start thinking of ways to cut your expenses so that you can add more to
your retirement savings. Can you sell your house and live someplace cheaper? Can you trade your car for something cheaper, or lose it altogether? Are you paying for memberships or subscriptions that you’re not using? Do you eat out several times a week? Be willing to slash your expenses to the bone. You couldn’t ask for a more worthy cause than taking care of yourself in retirement. (Here are some more advice on how to downsize.)
3. Maximize your investments. Enough people are in the same lack-of-retirement-planning boat that there are several provisions for those who are over 50. While younger workers can only contribute a set amount to their 401k and IRAs, savers who are over 50 may funnel as much as $5,000 more every year. Take advantage of these higher limits and reap the rewards when you’re ready to retire.
4. Plan on working longer. The difference between how much you have saved to retire at 65 and the amount needed if you wait until you’re 70 can be enormous. In some cases, it…