I get plenty of emails from people over 40 who haven’t saved enough for retirement. A lot of them are having financial troubles beyond that, which need to be addressed first. But the lack of retirement funds is always a nagging problem beyond their immediate financial needs. In fact, it’s usually the cause of their lack of retirement saving.
Of course, there are several reasons why that tends to happen. In this article, we’ll cover those reasons and explore 7 ways to get on track for retirement, even if you’re getting a late start.
Why You May Be Unprepared For Retirement
There are several reasons why many people get behind on investing for the future, ranging from simple neglect to extended unemployment. Here are some of the top reasons I’ve heard from people over the years.
- I just didn’t make it a priority to save for retirement.
- I’m in a low paying job and couldn’t spare the money.
- I’ve got too much debt and couldn’t contribute to retirement because of it.
- I’ve always lived paycheck to paycheck
- I tend to procrastinate when it comes to investing.
- And countless others…
I can truly identify with all of these excuses, I’ve used most of them at one time or another, especially when my income was drastically reduced, money was tight, and I felt like I just couldn’t afford to do it.
The Biggest Cause For Not Contributing to Retirement Accounts
Probably the most frequent reason I’m given is the one about too much debt. Most of the people that come to me seeking help with finances in their later years have been battling debt for decades and have never seemed to make any headway.
Debt has been a perpetual cycle in their life, causing them to live paycheck to paycheck and never be able to contribute to a 401k, IRA, Roth IRA, or any other investment options that were available.
Now they’ve gotten into to their 40’s, 50’s, or 60’s and suddenly realize that old age is creeping up fast and they are seriously unprepared for it financially.
Fixing Your Retirement Woes Starts NOW!
The first thing I can tell you is that it’s not always an easy fix. Convincing someone to change long term habits and situations that got them to this point in the first place can be a very difficult thing to do. When it comes down to it, turning around a dismal situation in your retirement funds takes plenty of work, commitment, and time to get the job done.
Obviously, the best time to start contributing toward retirement funds is when you were in your 20’s, when even a small amount of money would have decades to grow exponentially into millions of dollars.
The next best time to start saving for retirement is NOW!
7 Tips to Help You Catch Up For Retirement
So what are some of the things you can do to start building your retirement right now? Here are 7 tips that will help:
1. Open a Retirement Account
The obvious first step is to open a retirement account. I’m constantly amazed at how many people over 40 have never opened their own IRA, or opted in to their employer’s 401k or other retirement account options.
Getting an individual IRA or Roth IRA account started is relatively easy, and only takes about 30 minutes. Here are some good places to start:
2. Get Out of Debt
Next, I recommend getting out of debt except for your house. Debt is the #1 reason why most people are not contributing to retirement accounts. When you have to pay never ending credit card payments, car payments, payday loans, and other debt, you’re wasting tremendous amounts of money on interest and fees. You are robbing from your future to pay the bank now. It also means you’re probably spending more than you make.
So make a plan to get out of debt, get complete control of your money with a budget, and attack that debt with a vengeance. Here are some free resources to get you started:
The How to Get Out of Debt Blog Series
Free Downloadable Budgeting Forms
Make a Plan to Pay Off Debt (“Debt Rocket” forms)
3. Increase Your Income
You may also need to increase your income. I talk to a lot of people who are underemployed and seem to have trouble making ends meet, much less being able to save for retirement. Making just a few hundred extra dollars every month will radically change their situation. They can then pay off debt faster or put away major bucks toward retirement.
Making more money might mean you need to work extra hours at your present job, work your way into a higher position at work, or start a side business. When you can find a way to increase your income, that increase will be a source of funds to save for retirement that can build up very quickly, and multiply exponentially once that money is invested.
Yes, it will probably take some extra effort on your part, but that’s the price of admission to getting your problem fixed and on the way to building a retirement fund you can be proud of.
4. Set Goals
When you have goals in mind for how much you want in your retirement account at a certain age, it can light a fire under you and motivate you to get your retirement savings in gear. Figure out how much you want to have by a certain age, and divide that by the number of months until you reach that age. That will show you how much you’ll need to put into a retirement account every month until you reach your goal.
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5. Automate Saving and Investing
One problem that many people struggle with its having the discipline to put money into their 401k or IRA consistently. The best way to overcome that is to have the money automatically invested from your bank account every month. That way you don’t have to think about it, put it off, or forget about it.
When your saving and investing are automated, there is no thought involved and no need to exercise discipline. The deposit is done for you and you don’t even miss it.
6. Catch Up Contributions
If you contribute to an IRA or a Roth IRA, you can contribute up to $5,500 every year. But if you’re over 50, you can make an additional “catch up” contribution of $1,000 for a total of $6,500.
The limits on 401k contributions are even better. The 401k contribution limit is $17,500 per year, and if you’re over 50 you can add another $5,500 to that as a catch up contribution. So if you’re over 50, try to hit those targets as much as possible.
Here are the details from the IRS website about contribution limits:
Contribution Limits for Roth IRA's
Contribution limits for 401k's
7. Relocate or Downsize
If the kids have moved out and you live in a house that’s larger than you need, it might be a good idea to downsize. Moving to a smaller, less expensive house may free up some cash that can go straight into savings and retirement accounts. If you live in an area with a high cost of living, you may want to move to an area that costs less. That can also free up money, through buying a cheaper house and saving on living expenses, that can be put to work in investment accounts.
It’s Never Too Late To Save For Retirement
These are just some of the options you have to get your retirement savings in gear if you’re over 40. The one thing I’d like to stress is that it’s never too late to start saving for retirement. You may not be able to grow your money as much as you would have if you had started young. But starting right now gets you the maximum amount of time for growth to happen.
So don’t put it off any longer.
Find a way to change some habits and make it happen.
Your future self will thank you!
Question: Have you gotten a late start on investing for retirement? What was it that caused you to put it off? Share your answer by leaving a comment.
