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Saving for Retirement After a Late Start

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If only it was easy to follow the nicely planned, easily mapped steps to retirement. You simply put away 15% of your salary every year, get an annual raise, and put more money away into your company matched 401(k) plan. And when you’re 65 years old, you’re ready to retire, financially secure! Well, it’s not always that easy. In fact, it rarely is. Contributing to a retirement plan can be difficult when you have to balance a mortgage, student loans, car payment…the list goes on and on. Whether you didn’t have the money to contribute over the years, or retirement savings just slipped your mind, it’s not too late to get started. If you’re nearing retirement and haven’t started saving, here are some tips for you:

 

Know What You’ll Need

 

The sooner you understand how much you’ll need to save, the better off you’ll be at making decisions that help meet that goal. As a general rule of thumb, your retirement income should be around 80% of your final pre-retirement salary. However, that’s if you wish to maintain the same lifestyle and spending habits that you currently have. As it’s very situational, there is no universal figure that everyone is working towards. If you’ll be traveling and playing your fair share of golf, you might want to save more. If you’ll be downsizing your living situation, you might be able to get away with contributing less. You should still aim for that 80% if possible though, as unexpected expenses do pop up. Knowing what you need will help you work your retirement contributions into your budget.

 

Weigh the Risk

 

If you’re just starting to contribute to a 401(k), you should assess how much risk you want to take – if any. Taking on additional and aggressive investments to make up for lost time is a gamble. It could potentially work in your favor, with chances of large growth on your investments. However, because the potential for returns are higher, so is the potential for loss. Your risk should always be aligned with your age. People in their twenties can accept great loss as they have more time to recover. People in their forties and beyond don’t have as much time to get back on track after a misstep. Take a look at the 401(k) Help Center for a detailed guide on the suggested risk and allocation by age.

 

Know Your Options

 

Fear of the unknown can be a scary thing. Instead of dwelling on the fear of having no nest egg, educate yourself. Ask around and see what options can help you on your path to a healthy retirement. Speak to your HR department and ask what’s available to you. You might learn that you’ve been missing out on a 401(k) company match, or you might just hit gold and learn that you’ve been enrolled in pension all these years. If you want to save away as much as possible, but you’re maxing out your 401(k) contributions, look into opening a Roth IRA. Not only will you be able to increase your retirement savings, but your contributions will grow tax-free and can be withdrawn tax-free. And if you’re 50 or older, you can make additional “catch up” contributions.  You can add an extra $1,000 per year for your Roth IRA and an extra $5,500 per year for your 401(k) plan. Instead of ignoring the unknown, do some research. It can make the difference between a secure financial future and not being able to retire at all.

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