7 Steps to Start Saving After 50
The later we get in life the harder it is to start doing many things. Running your first marathon, becoming a scratch golfer, going back to school, writing your first novel or becoming a famous playwright, etc. Saving for retirement… Ouch!
Can’t sugar coat it – beginning to save for your retirement is tough the longer you wait. But you can do so. More importantly, you can make big strides that can allow you to eventually retire if you get going right away, no matter where you stand with savings and despite waiting into your 50s to start.
So you find yourself at the start, or maybe well into, your 50s and you can’t put down that nagging feeling that continues to grow more incessant.
You know the feeling…like pending doom. So bad that you can’t bring yourself to deal with it straight on. It’s there in the back of your head and you can’t shake the feeling like you did in your 30s and 40s.
Think you are alone?
Not so much…
According to the Federal Reserve’s 2022 report – Economic Well-Being of U.S. Households (SHED) – approximately 32-percent of non-retired adults age 45-59 felt their retirement savings plan was on track and heading in the right direction.
What about the rest? Well, some had savings, but limited, and in fact the report pointed out that fully 28-percent of the overall group had no retirement savings at all.
Translated, the answer to the question about being alone in your predicament is an emphatic NO.
You could always take some solace in the fact misery loves company. There’s lots of that going around, obviously.
Fact – the bad news is you are behind in terms or preparing for a day when you can retire, or worse, when health and other issues force you to do so…whether you are prepared or not.
Also Fact – the good news is there are things to be done that can improve your situation in the short and the longer-term.
What’s to be done?
Start by forgiving yourself. Past is past, as it were. Now is time to get serious and start to plan and make some headway.
Here are some steps to start that process:
The WHYs and the HOWs don’t matter at this point. What does is facing up to the reality you need to get going on saving. FOCUS from this point forward on the steps that need to be taken starting immediately.
These are simple and achievable.
BTW – don’t set up false hopes or goals. For now, simply start with achieving small victories and grow from there – they will add up in time. Take the attitude that some action is better than none.
Also, for now, don’t use or look at calculators. It’s not like you aren’t aware you haven’t saved adequately (or at all) for retirement. You don’t need to be looking at all the available retirement calculators online to enlighten you to your predicament or to remind you just how far you are behind.
Doing so now just plays into the guilt and creates more of the very paralysis that probably got you here to begin with. Down the line, when you’ve had some success and started to make real progress, you can start to use calcs to help.
Free up cash
You’ve resolved to do something about retirement, but now are wondering what to do.
Plain and simple. Free up cash and start putting it somewhere beyond easy reach.
You may be thinking that doesn’t sound simple. If it were you would have already done so. While that sounds logical, it’s not.
Consider your mindset in the past. At that point you were focused on what was right in front of you and felt that you’d have more time in the future.
Buying the home, raising kids (all the expenses in raising and educating them), dealing with the unexpected, including more than a few disasters, etc.
Those certainly were important.
Fast forward to now. Chances are your circumstances and your overall situation have changed.
The kids are older – maybe even out of the house and through college. And other areas are different now as well.
But you probably got used to spending a good portion, if not all, of what you brought home each month. You’ve become conditioned to doing so.
If you were to assess your spending now, you’re likely to find there is some room in the budget versus in the past. Money that you could put away each month starting now, with little real pain or effort.
It’s likely that if you are honest about it, you are overspending on areas like food (dining out), subscription services (Netflix, Prime, unused health club, etc.), additional forms of entertainment, and other areas of discretionary spending.
Just $100 a month adds up to $1,200 annually, not including interest earned on your savings. If you did nothing more than save that $100 per month from age 52 to age 65, earning say 5.5-percent in interest, which is certainly doable, and with no prior savings, you’d have over $25k in savings. At $150 a month you’d be looking at nearly $38k, and at $200 per month you’d have more than $50k. (See example here)
Fact is you won’t be retiring anytime soon given you have no or little savings now, so by instituting a small cutback in monthly spending and investing the money, you could have more than $50k for your retirement that you never envisioned. Think how much that can grow to by proactively saving more each year over the next 10 to 15 years.
Combined with Medicare (reducing your medical care costs) at age 65, and starting your Social Security benefit in your upper 60s to age 70 (more on that later); suddenly your situation is a lot better than it is now.
If you are serious, you should create a budget now and start to live within it going forward. Yes, pay your essential bills, but find balance on discretionary spending. You don’t have to live like a monk.
The amount you could save, and in turn invest, could add up quite a bit. And like most things, once you see progress it gets easier to get more aggressive and further improve your situation in a relatively short period of time.
One last thing to remember in terms of motivation. According to the Center for Disease Control (CDC), as a male you can now expect to live to an average age of 73, and age 79 for a female. That’s still a lot of years from now if you are in your younger 50s.
Chances are you will work longer than what you might have envisioned younger, which can be a downer, but the upside is that by facing your situation honestly now, you still have time to make a big difference in terms of what you will have available for retirement once you do actually get there.
Kick your debt to the curb
Credit cards. Loans. Mortgage. What can you possibly do to address your debt in a manner that makes a difference?
Your first goal here it to pay your mortgage off before retiring. If you can’t pay it off, at least down as much as possible.
Housing is the number one expense for people in retirement, so reducing that amount in any meaningful manner can make a big difference in terms of being able to maintain your standard of living…even retiring at all. Keep in mind that housing does include mortgage, property tax, insurance, maintenance and repair costs.
Not only does paying off (or down) your mortgage eliminate or reduce a major expense in retirement, but it’ll also provide more cash to save and invest, which can add considerably to what you’ll have at that stage in life.
Credit card debt at high rates is a no brainer. No matter how high a balance now, begin targeting your cards now with a plan of carrying no debt of this nature into retirement. Even paying down balances starting right away will reduce your monthly interest, which can in turn go to savings.
For most, a car payment is another major monthly expense. Paying a little bit more each month will reduce the interest you’re paying over time, which will reduce the principle quicker.
Once your car is paid off, keep saving the car payment amount so you can purchase a new car when needed down the road in retirement, if needed.
Set up retirement accounts
You don’t want to have money sitting around from this point forward as it will find a way to spend itself – which is a nice way of saying you’ll probably succumb to spending urges.
Set up a retirement account, such as an IRA. Start participating and contributing to your employer 401(k) plan (or similar employer-sponsored retirement plan), if available. Have them automatically take your monthly contribution from your check so you don’t see it and it is automatically placed into your account.
If they do matching and pay their portion through stock, be sure you pay attention to concentration risk, where you end up with too much of one stock or asset in your portfolio, which can be a risk to your overall portfolio and savings over time.
Take it to the max
Given you have a limited time frame, be sure to max out your available yearly contributions into you IRAs, 401(k)s and other similar accounts.
Aside from simply building savings, the IRS allows annual contributions that are tax-deferred, so you gain the advantage of placing more money into an account, combined with the powerful benefit of compounding interest, which really adds up over time.
And your contribution actually reduces your taxable income for the year, thus reducing your income tax owed for that year.
Contribution limits – According to the IRS:
The 2023 contribution limit for individuals who participate in 401(k)s and similar employer-sponsored plans is $22,500. Plus they can contribute up to $7,500 if age 50 and above in a catch-up contribution, bringing their maximum annual contribution to $30k.
For individuals contributing to an IRA, the annual limit is now $6,500. And if you’re 50 or older, you can make a catch‑up contribution of $1,000, increasing your allowable contribution limit to $7,500. Keep in mind that each spouse can take advantage of this provision.
One last thing to be aware of is the fact while an individual or both spouses can contribute to their 401(k) or similar employer-sponsored plan, as well as individual IRAs, there are phase-out provisions on how much in total can be contributed, as well as income limits. Learn more here.
Regarding employer-sponsored plans, they often provide a matching contribution based on a percentage of your annual compensation. T. Rowe Price stated in a 2021 report that the average employer matched between 50-percent to 100-percent of your contribution, up to an average of 4.5-percent of your annual compensation, with some matching up to six-percent and even higher.
While this is not tax-free income, it is tax-deferred, so you won’t have to pay taxes on a match until you start taking distributions in retirement. As such, it’s like throwing money away not to take advance of an employee match.
Same holds true for not maxing out your annual contributions to IRAs.
This may sound like a “duh” recommendation, especially since you are worried about having the money to eventually retire.
Truth is you need to establish a positive state of mind in order to make this work. Going from worrying you may never be able to retire and ending up on the street, to recognizing you still have time and can make serious strides, even eventually retire, is a big mental adjustment.
That starts by adopting the notion that continuing to work is an advantage in your favor.
Setting the record straight, according to a 2022 Gallup survey, the average age of retirement was age 61, and for those still working in 2022, the average age of expected retirement is 66.
That aligns with two important retirement tools:
- Medicare starting at age 65, which will reduce your monthly medical costs (not including long-term care)
- Reaching full-retirement age (now 67 for those born in 1960 or later) and being able to begin claiming your full Social Security benefit. If you wait till age 70, the monthly benefit payment increases by 32-percent to 132-percent compared to starting the benefit at the earliest date at age 62.
An important note is the fact you can now continue to invest up to any age, equating to more money invested and allowed to grow, taking further advantage of compound savings.
Another critical advantage of working longer (delaying retirement) is the fact that each year you work and bring in a paycheck, even working part-time, that’s one less year you are taking distributions from your savings to pay the bills and survive…your retirement savings are extended by a year.
One last note on delaying retirement. An Oregon State study reported findings which indicate working longer increases the likelihood of living longer.
Pan for gold elsewhere
While your primary income source is probably through your employer or your own company, starting a second job now and even after you retire can bring in income from other sources.
This is the gig economy, so get busy engaging in a side gig… Options include the following:
- Start a business. Hobbies- or passion-based businesses can not only increase your happiness, but they can also add to your bottom line. As previously demonstrated, even small amounts of money can add up. A small biz can provide a separate stream of income that further secures your financial health going forward.
- Sell possessions you no longer use. From a closet full of cloths and/or shoes to collectibles just sitting around, tools, extra vehicles, and more, you could be sitting on a chunk of money that can be packed into a retirement plan or non-qualified investment account
- Sell your home. A move to something smaller/cheaper can be very practical. Beyond that, a smaller or cheaper house equates to many other tangible benefits, ranging from less maintenance, a reduced mortgage payment (you are trying to eliminate that monthly mortgage payment, after all), less insurance and taxes, etc.
- And more…
Failing to start saving when you’re young can create real problems as you age up into your 50s and realize you have a major problem lurking ahead.
The good news is you can still take steps to address and alleviate the issue of having next to nothing to live on if and when you stop (voluntarily or not) working.
You can still do much to ensure you can eventually retire, versus living with the fear and anxiety you might be currently living with.
The key now is to stop dwelling on the regrets of the past, focus on what you can do, and to get going on executing a plan that is achievable.
It’s also probably time to start talking with a retirement planner to help you get going.
At Oak Harvest we can build a holistic, comprehensive retirement plan addressing relevant issues, utilizing strategies that cover taxes, income, spending, healthcare, legacy, and more, customized to your family’s specific needs.
A plan created with the goal of ensuring you have the best opportunity of living out the retirement you and your spouse envision.
Let Us Help You Achieve the Retirement You Deserve!
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