Everyone dreams of the day they can stop working, kick back, and enjoy their retirement. In a perfect world you would start saving for retirement when you got your first job, but as we all know, life doesn't always work out like that. There are a million different reasons why you haven't saved your million dollars before your 50th birthday. Don't give up though! You can still start saving for a comfortable retirement when you are older. Here are a few strategies.
Set Your Goals
The first thing to do is set realistic goals. Consider things like your lifestyle and where you want to live. Will you be downsizing? Factor in any expected income from Social Security and your company's pension plan. Be careful not to underestimate your needs, and remember to budget for emergencies and medical expenses.
Use catch-up contributions
You don't have to lose hope if you haven't opened an IRA (Individual Retirement Account) by the time you're 50. There are ways to catch up. Start putting money into tax-sheltered 401(k) and IRA retirement accounts. If you're over the age of 50, you can contribute up to $6,500 into an IRA and $24,500 per year into a 401(k).
Pay down debt
It's always a smart idea to get rid of as much debt as possible before retirement. One of the biggest debts people have at 50 can be their mortgage. Unfortunately, with many mortgages being refinanced, your house may not be paid off by the time you retire. There are some options.
- Focus on paying down your mortgage as much as possible.
- Sell your home and downsize to something you own outright.
- Take out a reverse mortgage on your home.
Now is the time to take a hard look at your lifestyle to see where you can reduce expenses, both now and in your retirement years. After kids leave the house, it's easy to increase spending but there are ways to decrease expenditures. For example, maybe you can get by with one car and get rid of the other car payment. If you live in a walkable community, you could get rid of your vehicle altogether. Another idea is to limit dining out to a few times a month, and create a realistic budget that gets rid of similar extraneous expenses.
Many people choose to sell their homes and move to an area with lower living expenses. This reduces expenses across the board, including housing costs, food, utilities, and taxes.
Time your retirement right
When you decide to retire can have a big impact on your finances. Many people wind up working longer than they originally planned, so don't get discouraged. You can decide to ease into retirement by reducing your working hours, or picking up a part time job after leaving your career. By delaying full retirement, you have the potential to earn more.
The timing of your retirement will also affect how much Social Security income you receive. You can start getting Social Security at 62, but it might be more financially feasible to wait. 62 is now considered retiring "early", and could reduce your social security benefits by as much as 30%. According to Social Security, Full Retirement Age, or FRA, happens between the ages of 65 and 67, depending on what year you were born. If you delay past the age of your FRA, you can get up to an 8% benefit increase per year until you reach the age of 70.
These are just a few ideas you can use if you started saving for retirement later in life. There's no need to feel discouraged, because every little step you take will bring you closer to your retirement goals.