3/14/2014 2:45 PM ET|
How to play the retirement catch-up game
If you’ve put off saving for retirement, and don’t want to work forever, follow these tips.
It's well established that if you start saving about 10 percent of your income for retirement starting at age 25, you're going to be in excellent shape for retirement when you hit age 65. This fact should be emblazoned on every single college and trade school diploma issued in the United States today: start saving for retirement now, not later.
Unfortunately, that fact doesn't represent reality. Quite a few of us didn't save at all during our 20s, and some of us didn't save during our 30s, either. All the time, I hear from readers in their late 30s or early 40s (or even later) who are just now realizing that they need to start saving for retirement or they're going to work forever.
If this describes you, the obvious answer is to start saving immediately. Right now. If you're reading this article and you're a professional adult without any retirement plan in place, you need to start a retirement plan.
If your employer offers a 401k program with matching contributions, run (don't walk) to the HR office and sign up for that plan. Contribute enough to get every dime of that matching money because it's essentially free retirement savings for you. If your employer doesn't offer matching in their 401k program, look into opening an individual retirement account. I recommend contributing 10 percent of your income to that IRA, for starters.
So, you're saving. Now what? The first thing to think about is time. If you're only contributing 10 percent of your income per year to a typical retirement fund, it's going to take about 40 years of saving before you can safely retire. Like it or not, that's the reality of it.
If you're 30 when you start, that means you're looking at retiring when you're 70. If you're 40 when you start, that means you're looking at retiring when you're 80.
- Also from U.S. News & World Report: Money tips for people retiring this year
Another problem is that simply doubling the contribution doesn't mean that you can halve the time. You can't expect to contribute 20 percent for 20 years and match what you would get out of 10 percent over 40 years. That would only work if you were getting no return on your money – in other words, if your retirement plan involves stuffing cash into a mattress.
Saving for retirement once you're behind the curve looks quite scary. Thankfully, there are a few things you can do to help improve your situation.
1. Get a Social Security estimate
The average American earns 40 percent of his or her retirement income from Social Security benefits, so knowing what you have coming to you can go a long way toward soothing retirement fears. The Social Security Administration offers a calculator to help you figure out how much you're going to receive in benefits. It's a good idea to wait until you're as old as possible to start collecting benefits so you can maximize the income.
2. Look for ways to boost your income
Many mid-career folks find opportunities for freelance work and side businesses that can supplement their current income. Instead of simply spending that money, however, channel all of it into retirement savings (or into a mix of retirement savings and debt repayment). If you're unsure where to start, visit your local library for information on side businesses and freelance opportunities related to your career path.
3. Hike up your savings
If you wish to retire earlier than 40 years from now, you're going to have to save more. That means stowing away a higher percentage of your income. A good quick rule to use is that for every 10 years you want to shave off your goal, you need to double how much you're saving. If you want to make it in 30 years, shoot for 20 percent per year. Twenty years? You should be saving 40 percent of your income per year. You need that boost to make up for the time you lost.
- Also from U.S. News & World Report: When you should take Social Security
4. Cut out unnecessary expenses
Finally – and this is the tough part – you may have to consider some cutbacks. If you're living a lifestyle that makes saving for retirement inconceivable, then you're simply living beyond your means. You can't assume that your ship will come in someday and everything will be OK. Everyone has expenses that they can cut from their life.
The road to retirement is a challenging road – but it's not an impossible one.
More from U.S. News & World Report
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I have seen too many people who had to keep working because they were too young for Medicare. Then at 64 1/2 they get cancer and die. Good people who have worked hard all their lives.
Retirement comes with no guarantees, so save as much as you can as fast as you can. Then get out and enjoy life.
Remember the Government (both Democrats and Republicans) does not care about you.
The only problem with taking social at 62 is the approximately 23% to 28% difference that you lose. My husband drew his social at 64 and he lost 8% of what he would have gotten if he retired at 65 and 10 months. Now that he has been retired for 8 years, that 8% makes a big difference with the cost of everything skyrocketing.
If you are healthy might be in your favor to draw at full retirement age, if not so healthy work as long as you can. Drawing your social is strictly on ones personal needs.
Also remember you cannot get your medicare until you are 65 years of age.
Do your research before making any decision. And by research I don't mean ask a friend, check out social security online and if you don't get your questions answered call social and if your still not sure go to social (early and expect to wait) but anyway be fully informed.l
Do not do as I say, do as I did. I was a complete failure at building a portfolio until I was 43. For the last twenty years, I have been a super saver(30+%) but for the first twenty, I was a failure for various human reasons. I was not able to let compound interest work for me as well as it could. But maybe this is the human condition.
Maybe a better approach is to learn how to invest, invest primarily in your earning power and build a minimal portfolio to gain experience. For this concept to work, you need to agree that the money spent on your family in the first 20 years will go to your retirement portfolio in the future, not into building a more expensive lifestyle.
Retirement health care costs seem to be the unknown to me.
Scary big costs, not just premiums, but bills that just show up in the mail later.
Saved since 19 and could be fine in retirement, but, how to know? how to budget?
I believe I should work till 63.5, giving me the option of cobra or Obama care.
Where do I to go for info/ advice/ education?
People need to tighten their belts.Eat beans and hotdogs 3 times a day and wash it down with water.
Find an investment that pays 17% a year and contribute $1000 a month for 60 years and you`ll be
a BILLIONAIRE !
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