Late Saving for Retirement? Here's How to Catch UpIdeally, everyone would start saving for retirement early so they have the time to slowly build a nest egg through decades of regular contributions and compound interest. In reality, though, that’s not what happens. Whether it’s due to a lack of financial stability or just plain-old procrastination, about 50% of American households are at risk of not having enough money to maintain their living standards throughout retirement. However, if you’re over the hill and behind on your retirement savings, don’t despair. If you’re willing to make some sacrifices and take steps to dramatically increase your savings, you can put yourself on the path to a nice retirement. Keep reading to learn some retirement tips for late savers, as well as some basic retirement information you should know.

Optimize your spending

Before you can start putting away the kind of money you’ll need to have a comfortable retirement, you’ll probably need to clean up your everyday finances a bit to free up some funds. If you don’t already have a budget, now’s the time to make one, as it’s the easiest way to find areas where you’re overspending and able to cut back. This may involve simplifying your life a bit and figuring out which things you buy out of habit or convenience and which things you buy because you truly value and need them. If you go through this process and can’t find much in your life that you can alter to save more money, it’s possible you’ll need to make a larger lifestyle change. That could be something like getting rid of your automobile and carpooling, taking public transit to work or moving to an area with lower cost of living.

You’ll also want to use any tools you can to stretch your money. There are a couple of easy ways to do this, the first of which is to move any money you’re saving, such as an emergency fund, to an online savings account. While savings accounts at traditional banks typically only pay a fraction of a percent each year in interest (usually around 0.05% or less), online savings accounts can have annual yields of 1.50% and above. Secondly, using a rewards credit card for your everyday shopping and bills can add more value to your purchases, giving you cash back or travel rewards for buying things that you would’ve bought anyway. You can also use the credit card rewards to help you budget for extraneous purchases. For example, you can save up your cash back rewards all year and then use it in December to buy Christmas gifts, or you can hold off on taking a vacation until you can pay for the entire trip using points or miles.

Save aggressively

To make up for lost time and interest, you’ll need to save more money than normal to bulk up your retirement fund. Fifteen percent of your total income is common advice for how much you should be saving for retirement, but if you’re trying to catch your savings up, 15% is more like the minimum you should stash away. In terms of where to put the money while you’re saving, a savings account won’t give you the growth you’ll need, so you should probably stick your money into an investment account, which will give you higher returns while limiting your access to your savings until you hit retirement age. The most common investment accounts for retirement are 401(k) accounts, which are offered through employers, and individual retirement accounts (also known as IRAs), which are offered directly through financial institutions, though sometimes employers offer them as well. 401(k) accounts have an annual contribution limit of $18,500 per tax year, while IRAs have an annual contribution limit of $5,500. If you’re 50 years old or older, though, your annual contribution limits are higher, going up to $24,500 per tax year for 401(k)s and $6,500 for IRAs. Before you choose whether to fund your 401(k) or IRA, check to see if your job offers you a 401(k) with an employer match. If so, contribute enough money to earn the employer match, because it’s as close as you can get to free money for your retirement savings.

Beyond 401(k)s and IRAs, you also need to decide which type of account to use: traditional or Roth. Traditional retirement accounts let you contribute money to them tax-free, meaning the money you deposit isn’t counted for your taxes that year, but you’re required to pay taxes on any withdrawals you take. Roth accounts are the opposite, not giving you any tax advantages on the money you stock away, but letting you make withdrawals without paying taxes. Traditional accounts are good if you don’t plan to have many different sources of income in retirement, while Roth accounts are better if you think you’ll have some additional income from, for example, a part-time job. Note that if you think you may take early withdrawals from your retirement account to help with a financial emergency in the future, a Roth account is definitely the better choice, as Roth accounts let you take out any money you’ve invested in them without paying the stiff early withdrawal penalties that retirement accounts normally carry.

If you’re currently paying off high-interest debts with APRs above 5%, you may want to finish paying those completely before you start saving for retirement. The returns you’ll get on retirement investments will likely be cancelled out by the additional interest you’ll pay if you keep your debt for longer than you need to. To help you get through your debt as quickly as possible, you may want to consider a balance transfer to a credit card with a 0% intro APR offer on balance transfers. While you may have to pay a balance transfer fee, usually 3% to 5% of the total transfer, this one-time will is likely a lot lower than your current credit card interest, meaning you’ll get some time to pay off your debt’s principal without having to worry about high interest payments.

Consider disability insurance

As you get older, your chances of being left unable to work due to a debilitating injury or illness increase. Apart from saving for retirement, you may want to consider signing up for disability insurance of some kind to replace your income in case this happens to you, especially if you have a physically demanding job. There are two types of disability insurance, short-term and long-term. Short-term disability coverage pays a percentage of your income for three months to a year with a waiting period of a couple weeks, and long-term coverage has a waiting period of 90 days or more and pays a percentage of your income for several years or until you reach a certain age. Many highly physical jobs offer voluntary disability insurance as something you can sign up for, and if you live in California, Hawaii, New Jersey, New York or Rhode Island, either the state or your employer is required to provide short-term disability benefits to workers.

Delay taking Social Security

In December of 2017, the average annual retirement benefit paid out by Social Security was only $16,848. That’s not enough for most retirees to live on by itself, but Social Security benefits are a significant part of many Americans’ retirement plans, so you’ll want to maximize them. The easiest way to increase your Social Security benefits is to hold off on taking them for as long as you can, as the retirement money you receive from Social Security is partially based on the age at which you start accepting benefits. Every person has a “full retirement age” that differs depending on the year they were born, though for most people who haven’t retired yet, it’s around 66 or 67 years old. Taking your benefits at that age will give you 100% of your Social Security benefit, but each year you wait to file for benefits until age 70, your Social Security payout will increase by 8%. Assuming you receive the average annual benefit of $16,848, delaying your Social Security benefits for even just two years will give you an extra $2,695.68 per year to live on! If you continue working during that time as well, the extra couple years of saving for retirement will help pad your accounts.

If you’re curious about what kind of Social Security benefits you’ll receive, the Social Security Administration has a free benefit estimator that can help.

A late start may make the process harder, but by taking the right steps, late savers can enjoy a comfortable and dignified retirement. For more articles to help you plan your fiscal future, follow our personal finance blog.

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