How to Catch Up on Retirement Savings for Late Starters

Many financial experts agree that retirement planning and savings should begin as early in life as possible, and this is so that the individual can take advantage of compound interest, the time power of money and more. 

However, it is easy to put off retirement savings for another when retirement seems like it is in the distant future. This is even more true when there is a current need for the cash, such as to pay off debts, to pay the mortgage or to pay for the kids’ college.

While it may be easy and even common to put off retirement planning and saving for another day, many will have the unfortunate realization that they waited too long to start saving. For those who are getting a late start with retirement planning and savings, there are a few key steps to take to jump start these efforts.

Set Goals

When getting a late start with retirement savings, decisions regarding where every dollar is allocated are important. Because of this, setting goals and developing a strategic plan are important steps to take.

Research the options for staying in a current home after retirement versus moving to a potentially more affordable place to live. Learn the amount of Social Security benefits that will be received in retirement. Create an estimated budget to determine how much additional money is required to live comfortably in retirement.

Take into account inflation, and keep in mind that retirement often spans across decades. Many will need significantly more money to live in retirement in later years than during the first few years after retirement, and budget and planning efforts should take this into account.

Focus on Paying Down the Mortgage and Other Debts

A key step to retirement planning is to minimize debts and expenses. Less money is needed to live on in retirement if regular living expenses only include insurance and medical expenses, utilities, food and gas.

A key strategy to plan for retirement is to pay down a mortgage and to ultimately eliminate other debts. Consider refinancing the mortgage if necessary. By establishing the mortgage on a shorter term, more of each payment will be applied toward principal.

Furthermore, a better payment schedule that results in the home being owned free and clear within a fewer number of years will be established. Some may use home equity to pay off other debts. This can be beneficial for those who have high interest credit card debt or other forms of revolving debt that may be more difficult to pay off.

Some homeowners may find that they can set up lower total debt payment, build equity faster and pay off other debts by refinancing. An alternative, however, is to roll credit debt and other loans into a single personal loan with a term that is advantageous for retirement planning efforts.

Free Up Extra Cash for Savings

After determining how much additional income is needed in retirement, take a closer look at current expenses. Consider eliminating or reducing unnecessary expenses, such as a cell phone or cable plan.

The payments made for these services could be applied to retirement savings accounts and other savings efforts. Also, consider living more frugally to save money as well as to prepare to live on a tighter budget in retirement.

Maximize Retirement Account Contributions

Many who take the steps of refinancing and consolidating debt as well as trimming the fat from the personal budget may notice that they have several hundred dollars or more per month available for savings that they did not have previously.

Learn about maximum contribution limits for retirement accounts available, and consider maxing out the limits. There are tax benefits associated with some of these accounts that may be helpful when trying to catch up with savings. However, remember that it is important to diversify and make sound investment decisions as well.

Think About Other Sources of Income in Retirement

Retirement savings account are commonly used for retirement planning, but they are not the only options available. The ultimate goal in retirement is to have a steady stream of income that can be used to pay for living expenses, and hopefully, there will be enough money available for travel, hobbies and more as well.

Retirement account distributions and Social Security payments are among the most common options, but they are not the only options available. Some can generate income from investing in rental properties, purchasing an annuity, stock dividends or even a reverse mortgage on a home. The best retirement plan may take into account a combination of several of these.

It is easy to panic and feel stressed when getting a late start on retirement planning and savings. However, with the proper strategy and focused effort, it may be possible to catch up and to enjoy a comfortable retirement.

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