In your 50s? It’s not too late to start saving for retirement

While it can seem daunting to start saving for retirement in your 50s, keep in mind, you are not alone. From paying for a child’s college tuition to taking time off work for health-related issues, there are a number of reasons why someone may not start planning for retirement until later in life.

Fifty-four percent of baby boomers have little to no savings according to the Insured Retirement Institute. If that sounds familiar, then you need to start shifting your mindset from wondering why you put off saving to thinking about what will make you the most successful in retirement. Luckily, there are multiple strategies you can employ to help get you started.

Your highest priority is to get out of debt. Entering retirement with significant debt may set you up for failure. Liquidating your debt, including your mortgage, and then remaining debt-free is one of the best moves you can make as you plan for retirement. The less debt you have, the less money you will need each month to cover your expenses.

You should also think about downsizing your home. You may still be living in the house where you raised your family. Is it too big? Does it cost too much to maintain? Are taxes too expensive? Can you live in your current home into your later retirement years? If you can, do you want to? Depending on your answers to these questions, you should consider selling and moving into a home that will allow you to still enjoy retirement but save some money as well.

Next, create a retirement budget by thinking critically about likely expenses. Don’t forget to factor in health care expenses, which may be vastly higher than you are currently experiencing. Think about what emergencies or life changes could derail your budget. Medical expenses, long-term care or the premature death of a spouse could all be potentially devastating financially. This budgeting exercise is not just about cutting expenses but also thinking realistically about your projected spending in retirement.

A common question people ask is, “how much will I need to fund my retirement?” First, ignore the “retirement calculators” on the internet. They are often not helpful and may discourage you from starting to save. Instead, think about saving in one of two ways. You can ask yourself how much you can save from your current budget and then estimate how much that money will grow over the next 15 to 20 years at a reasonable rate of return. This will give you an idea of what your financial footing will be when you start your retirement.

Next, determine how much you can spend. Estimates fall typically within the three percent to five percent range depending on how you are invested. The other way to think about it is to start by determining what you are likely to spend. After that, you can begin to calculate what you will need to save to maintain your standard of living.

Set some realistic financial goals and commit to regularly investing each month. Consistently putting money into your retirement account is a great habit. It is easier to accomplish financial goals by saving small amounts than by making a single contribution annually, and this strategy will also allow you to potentially capitalize on the ups-and-downs of the market.

Be sure to increase the amount you save each year and take advantage of your 401k if your employer offers one. After 50, you can contribute more to a 401k using the “catch up” contribution rule. The current maximum contribution is $26,000 per year. Even if you do not have access to a 401k, you can still open an IRA and “catch up” with a total annual contribution of $7,000.  

You will want to make sure you are investing wisely. Develop a reliable investment portfolio that fits with your tolerance for risk and allows you to stay invested when the market gets volatile. Now is not the time to take chances on crazy schemes or to move in-and-out of the market. Solid and reliable investments should be your guiding principles. Keep in mind there is no “magic number” you need to hit. Having some money generating additional income is better than having no money. If you are uneasy about whether you are setting realistic goals or have a strong portfolio established, call in a seasoned professional who can help you set up and monitor your investments.

It is also critical to maximize your social security or other benefits. Social security is an excellent source of income because there are cost-of-living adjustments throughout your life. You may need to work longer than planned, however, to ensure that you are fully leveraging the program. Your social security benefit is based on your best 35 years of income. Working just a little longer at a higher income tier may allow you to eliminate some of the lower-income years–increasing your overall benefit in the process.

If you have a pension, work long enough to maximize that as well. It may or may not have a cost of living adjustment, but any lifetime payment is advantageous to your long-term retirement goals. You may even want to consider working part time for a while after you retire to create a little bit more monthly income.

Ultimately, do not let the challenge of starting late on saving for retirement deter you. By setting realistic goals, concentrating on what you can control and practicing financial discipline, you can still build wealth and ensure a secure and sustainable retirement.