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Once people reach their mid-fifties, they finally start seeing the light at the end of the tunnel. It’s around this time that they start to plan for what they’ll do once they retire, imagining lazy afternoons on the golf course or having lunch with friends. They often envision the trips they’ll take with spouses and all the wonderful extra time they’ll spend with their family.
But what if you haven’t started saving yet? What if you’re in your forties and had to pull your retirement investments due to personal commitments or the weakened economy? Well, you’re not alone. The Employee Benefit Research Institute reports that 60 percent of all workers today who were born between 1946 and 1964 have saved less than $100,000 for retirement.
It’s best to begin saving for retirement in your 20s. But that’s not always an option. Here’s how to save for retirement after 40 years old. If you fall into that 60 percent, you’re likely wondering how you’ll ever make it through retirement age and stressing about the dollar signs. Here are some tips, compiled just for you.
Reassess Your Priorities
Once you’ve decided to get serious about your retirement fund, the first thing you should do is reassess your life priorities. What is your overall goal for the next 20 years? What would you like to be doing with your daily life in 20 years? Part of this reassessment should involve taking that information and looking to the future to help you decide whether the things you’re currently spending you’re money on are in line with those things.
Do you really need that second house in Florida? Do you have to drive a Lexus or would a Chevy work just fine? Deciding what’s most important to you will make it easier to make hard and fast decisions down the road.
Downsize your Budget
For some, this could mean simply reducing the amount of money you spend on small incidental expenses like eating out, vacations, and shopping. For others, more drastic downsizing may be in order. It may mean selling your home for a more economical condo or smaller house. This is especially helpful if there’s a decent amount of equity tied up in the property.
Have you considered alternative living situations? If it’s geographically feasible, consider moving in with your adult children or other relatives, and put the money you were using to pay your mortgage and property taxes into your retirement portfolio.
Capitalize on Increased Contribution Limits
Increase your 401(k) and IRA contributions to the highest amount you’re allowed. Once you reach age 50, the limit of money you’re allowed to contribute to these accounts will increase from $17,000 to $22,500 and from $5,000 to $6,000, respectively. Take full advantage of those limit increases, as they’re often tax-deductible.
Furthermore, if you’re not currently contributing enough money to qualify for the full employer match, you’re throwing away free money. Really squeeze your budget and contribute everything you can to those accounts now while you’ve got that matching program to maximize your efforts. After you’ve downsized your budget, and while you’re focusing on IRAs and 401(k)s, start weighing the pros & cons of annuities and consider adding them to your portfolio as well.
Simply speaking, people are living longer now than they ever have in human history. Thus, the standard retirement age of 65 is quickly becoming 70. Jump on the bandwagon and work an extra five years, or however long you’re comfortable doing so.
Working til an older age will give you more time to build your retirement fund, and will inherently reduce the chances that you’ll run out of money during retirement. With an extra five years’ worth of savings, you’ll have more time to let your investments grow and to contribute to them aggressively.
Keep Insurance Policies
While you’re downsizing and working longer, it may be tempting to do away with insurance policies. Whatever you do, don’t skimp on your life insurance and long-term care policies. Yes, it’s important to cut out unnecessary expenses and save as much as you can, but those policies will be your lifeblood, should your health status change. You can still find cheap rates on life insurance and get a policy that will help your family if needed. Not having long-term care insurance can completely devastate your entire estate, should you or your spouse ever need that care down the road.
Life and long-term care insurance policies are so affordable that it shouldn’t be a problem to work them into your new, smaller budget.
It’s best to begin saving for retirement in your 20s to take full advantage of compounding interest rates. But that’s not always an option in today’s economy. If you find yourself within 15 years of retirement without having made any preparations, remember these tips, and you’ll be on your way to retirement bliss before you know it.
Author Bio: Jane Miller is a freelance writer who loves to write about anything from tech to mommy stuff. She is featured in many blogs as a guest writer and can write with authority on any niche or subject.