Are you in your 40s or 50s with no retirement plan but you wish to retire well? If YES, here are 17 smart tips on how to save for retirement in your 40s or 50s. When some people think about retirement, they only picture it as an end to a vibrant life. This is the primary reason why they put off thinking about retirement till it comes around to haunt them. But retirement is not something to be dreaded.
In looking to save for your retirement years, it becomes very important that you consider how you want to live in later years, the amount of money that you might need to put aside to get the desired lifestyle, as well as the type of investment you should look towards.
Before looking at some retirement options, it would be needful to see what a retirement saving option is all about. Simply put; a retirement savings options is all about knowing the type of retirement saving options that might be best for you.
Whilst some look at the option of saving with retirement savings experts that are saddled with pension plans, yet others look at personal investments that might appreciate and yield a whole lot as the years roll by. Here are best retirement saving options that you might find really convincing.
8 Smart Tips on How to Save for Retirement in your 40s
If you’re in your 40s, there’s a good chance you have kids, a house and a stable position in an organization of your choice. You might start thinking about getting a new car, upgrading the kitchen or maybe getting that boat you’ve been eyeing for a while now. But you have to know that now is not the time to start giving in to lifestyle inflation. You’re at a critical time when your investment returns are ideally going to start outpacing your contributions every month, and it’s time to capitalize on that.
It’s also time to figure out what you want to spend in retirement. Now that you have perspective on life, retirement and investing, you can plan a more reasonable retirement budget and figure out how long it’ll realistically take you to get there. But what if you didn’t start saving for retirement early, and as at the age of 40, you are still at zero balance, what are you going to do? Here are a few pointers to guide you through saving for retirement if you’re entering the game late.
Table of Content
- You need to Catch Up
- 2. Analyze your retirement needs
- 3. Lower your cost of living
- 4. Shy away from taking more investment risks
- 5. Open a Roth IRA
- 6. Buy Adequate Insurance
- 7. Pay Down Debt
- 8. Get a side job
- Revisit Your Savings and Investment Goals
- Prioritize Your Needs over That of Your Kids
- 3. Save your bonus
- 4. Keep your hands off your 401(k)
- 5. Think about long term-care
- 6. Be sure your kids graduate on time
- 7. Mind the way you take on school loans
- 8. Eliminate Your Mortgage
- 9. Seek expert help
You need to Catch Up
Let’s assume you’re 40 years old and have no retirement savings; at your age, you’re legally allowed to save $17,000 per year in a 401k retirement fund. What you now need to do is to save aggressively to catch up with the time you already lost.
Assuming you have a 7 percent rate of return, your 401k will grow to $1 million in 24 years and 2 months. That means you’ll be on track to have $1 million by the age of 64, in time for retirement.
2. Analyze your retirement needs
Even if you feel that you do not need much money for retirement, you have to know that you need about a million and upwards. Most experts agree that during your retirement, you should withdraw no more than 3 – 4 percent of your retirement portfolio each year. (These are known as the “4 percent rule” and the “3 Percent Rule”.)
Three percent of $1 million is $30,000. Four percent of $1 million is $40,000. In other words, if you want to live on an income of $30,000 – $40,000 per year in retirement, you’ll need a portfolio of at least $1 million dollars.
3. Lower your cost of living
By the time you reach your 40s, you’re generally earning substantially more than you did in the earlier stages of your career and, as such, feel comfortable taking on greater expenses. But if you’re serious about building some retirement savings, you’ll need to start slashing your living costs to free up cash to put away. So, take a look at your budget, see where the bulk of your money is going, and figure out which major expenses you’re going to cut.
Make no mistake about it, you will need to cut at least one major expense if you want a shot at a financially secure retirement. Scaling back your cable package might put another $50 a month in your pocket, as might packing lunch twice a week rather than buying it. But if you have virtually nothing saved in your 40s, it’s going to take more than $50 a month to make up for two decades of neglecting your nest egg.
4. Shy away from taking more investment risks
Some people in their 40s make the mistake of taking on additional investment risk to make up for lost time. The potential returns are higher, true: rather than 7 percent, there’s a chance that your investments can grow 10 percent or 12 percent.
But the potential for loss is also much higher here. Your risk should always, always be aligned with your age bracket. People in their twenties can accept greater losses since they have more time to recover. People in their forties cannot. If you are hit hard, you may stay down for life.
5. Open a Roth IRA
Once you’re finished maxing out your 401k, open an IRA and maximize your contribution to that as well. A 40-year-old who is eligible to fully contribute to a Roth IRA can add extra money each year to their retirement savings. Contributions to a Roth IRA grow tax-free and can be withdrawn tax-free. You’ll even avoid capital gains tax.
6. Buy Adequate Insurance
Calamities are the single biggest reason why people are forced to declare bankruptcy. Reduce your risk by buying adequate health insurance, disability insurance, and car insurance.
If you have dependents, consider term life insurance for the duration of the time that your dependents will rely on you financially. Many financial experts say that whole life insurance is generally not as good of an idea, especially if you’re starting the policy in your 40’s.
7. Pay Down Debt
At this age, your priority should be to pay off credit card debt, car loans, and other high-interest or non-mortgage debt. Weigh whether or not you should make extra payments on your mortgage. If you’re in the early stage of your mortgage, and many of your payments are being applied towards interest, it might make more sense to make extra mortgage payments.
If, however, you’re in the final years of your mortgage and your payments are primarily being applied to the principal, you may be better off investing that money.
8. Get a side job
When you’ve worked for 20 years or so and have already paid your dues, the idea of working even harder might seem unappealing. But if you’re willing to take on a side hustle on top of your regular job, you might manage to salvage your retirement without having to make some of the drastic compromises discussed above.
For example, if you’re able to earn $500 a month on top of your regular paycheck, you can perhaps think about hanging onto your larger home and second car, and simply cutting a few smaller expenses to further pad your nest egg. Better yet, if you reduce some major expenses and get a second gig, you’ll increase your chances of not only retiring on time, but doing so with quite a bit of money.
There is still hope even if you start retirement planning late. The key is to be discerning in selecting your financial products and save diligently.
At this point, you and your spouse should come first. This means that you should not skimp on retirement savings to send your children to college. Your retirement savings should always be a priority. Remember that your kids can take out student loans, but you can’t take out a retirement loan.
Your kids have time on their side, but one thing you don’t have is time. Your kids can start saving for retirement in their 20’s and 30’s, but you cannot. Your kids are adults now; let them stand on their own two feet. The best gift you can give them is your own financial retirement security.
9 Smart Tips on How to Save for Retirement in your 50s
In your 50s, your retirement strategy should shift from accumulation to preservation. In this decade, you are advised to stay away from variable products and shift more of your money away from stocks and into secure vehicles like high-quality bonds or annuities. The following tips would help you keep things streamlined as you continue preparing for retirement.
Revisit Your Savings and Investment Goals
Your 50s are a key time to fully prep for retirement, whether it’s five years away or 15. At this point, you should be saving as aggressively as you can. At this age, you need to make sure that you are making the right investments, and that you are not taking on any risks.
Prioritize Your Needs over That of Your Kids
During this decade of your life, some people might still be struggling to figure out how much they can afford to support a grown child. The deal right now is that even though it can be tough, continue to put yourself first. The clock is ticking, and there’s a very real possibility you may not get to work as long as you want due to failing health.
3. Save your bonus
A bonus is one big thing to be excited about, but not anymore. At age 50, you should aim at saving your bonus towards your retirement instead of looking for the next big thing to throw it into. At this decade, you should aim at saving every windfall that comes your way.
4. Keep your hands off your 401(k)
When college or any other major cost hits, that juicy 401(k) looks tempting. You must resist this urge. Encourage your kids to take student loans if you must instead of tampering with your retirement fund, as you may not be able replace it before retirement, especially at this age.
5. Think about long term-care
If you’ve already started funding an HSA, look into insurance plans for long-term care, which can help cover your ongoing health care, assisted living or nursing home costs later in life. You might think it’s early, but it’s better to be prepared.
6. Be sure your kids graduate on time
The earlier your kids leave school, the earlier they can start taking care of their affairs. You have to ensure that your kids are taking the required course loads that would enable them finish in four years or less. At many schools, the credit level for full-time enrollment is less than you need to graduate in four years. To avoid footing the bill for another year or two of tuition, check that your child is carrying the max course load, or suggest summer community college classes.
7. Mind the way you take on school loans
Saying no to your kid is hard, which may explain why parent plus loan balances have doubled over the past 10 years. But taking out lots of those loans, which recently carry a 6.4% rate, can be risky. A good rule of thumb is that you should not borrow more than you can repay within 10 years or by retirement, whichever comes first.
8. Eliminate Your Mortgage
For a lot of people, their living expenses are standing in the way of their retirement goals. Since your largest expense is probably your mortgage, why not start thinking of paying out your mortgage.
Obviously, one option for paying off your mortgage is to make extra payments and whittle away at it one bit at a time. But don’t dismiss the idea of selling your home and downsizing to one you can pay cash for. That will immediately free up thousands of dollars you can use to build up your nest egg.
9. Seek expert help
It may be a good idea to seek professional guidance to ensure you’re on the right track and to ensure that you are setting realistic goals. A recent survey found out that workers who have a financial adviser are more likely to be satisfied with their workplace retirement plan than workers without an adviser.
For many, hiring a financial adviser is the best thing they could do to help themselves, because numbers and financial planning are tedious and complicated to some people. If you are in this category, then do well to hire a financial adviser.
When it comes to retirement planning, the main question you need to ask is what kind of lifestyle you want to live in your later years. If you expect to maintain or exceed your current standard of living, you need to save more, and you need to start early. Being consistent in actively managing your portfolio will pave the way for a secure retirement. This means that you have to start early enough to pay off your debts, grow your emergency fund, and save for retirement.