A sense of mild panic can set in as we reach a certain age and face the fact that we could have saved more for retirement when we were younger. It’s been my experience that women generally worry more than men about running out of money. Let’s look at some catch up ways to save for retirement as we approach that milestone.
To keep it as simple and straightforward as possible, you only have two options (or a combination of those two): make more money and/or save more of what you make. (Actually, there is a third option – an inheritance or windfall, and I mention how to handle that below.)
1. Make More
For the self-employed, the “secret sauce” is almost always the same: figure out how to work smarter and get more production out of the same number of hours in a day. By “production,” I mean income. Whether it means more sales, more billing hours or more dollars per sale, you should take a step back and see how you are spending your time. Maybe it’s time to shed an account that takes lots of time but shows a relatively low dollar return. Maybe with a little more focus or organization you can schedule one or two more prospect or client touches in a day, which could yield a nice income jump.
For employees, consider how long it has been since you received a raise. If you have been doing good work, have you asked for a raise lately? There are lots of tips available on how to effectively ask for a raise, but it all starts with taking the step to ask. That alone increases your odds. Here is one article from Monster on tips for asking.
Ways to save for retirement include taking a second part-time job. One upside of this economy is that more employers are looking for contract workers and part-time workers, which gives the employer more flexibility in controlling costs. Some of these gigs have a higher hourly rate than they would if they were full-time because of the extra flexibility it gives the employer, plus the employer’s ability to avoid paying benefits required for full-time employees.
2. Save More
Duh! That’s easy to say, but let’s get your creative juices flowing with a few ideas. First, take that pay raise you just negotiated or earned through extra effort and direct ALL of it into retirement savings.
Ways to save for retirement include taking that tax refund you just got and stash it in savings. And while you’re at it, if the refund was sizable and nothing much is going to change this tax year, you are withholding too much and letting the IRS keep it until the refund. Consider refiguring your withholding, which would give you more take home pay. Then, direct those extra funds to your savings!
If you receive a windfall inheritance, avoid the temptation to spend it and sock it away for retirement.
Ways to save for retirement include doggedly reviewing your expenses and consider where you can cut without seriously affecting your lifestyle. Whether it be controlling the thermostat, cutting some of the frills off your cable bill, cutting back on $5 cups of coffee, a cheaper gym membership or less dining out, we all have places to trim without much pain if we take the time to search.
The options for cutting back are many. As the zero-debt guru Dave Ramsey says, there are three factors in saving for retirement: rate of return, length of time until you retire and the amount you save. You can’t always control your rate of return, and circumstances can alter the time you retire. The only factor you can control is how much you save.
3. Maximize the “Free” and Cheaper Money
If your employer offers a 401k (or similar) plan with a percentage match to what you contribute, taking advantage of it is like getting “free” money. My firm nearly always recommends contributing at least enough to a 401k or similar plan to get the maximum employer match. Doing less leaves “free” money on the table.
On ways to save for retirement for the self-employed, speak to your financial advisor about creating your own plan that allows you to sock away money with some tax-advantaged savings.
The federal government has recognized the savings gap of many mid-career and older Americans and provides tax advantages for those 50 and over to save more. Those include higher allowable contributions to 401k and similar plans and higher “catch-up” contributions to IRAs. It’s not “free” money, but with the tax advantages it is “cheaper” money.
4. Be Efficient with Your Savings
My husband and I lost our nest egg when we were young because a stock broker put us into risky investments that were totally inappropriate for our status. Find a financial advisor that has your interests at heart and is in-tune with your risk level and empathetic with your lifestyle choices. Watch for investments with high fees and brokers who make a living off the trades that move your money constantly.
When shopping where to put your 401k or 403b money among the choices offered by your employer, look hard at the administrative fees in the investments your company offers. Those fees take money right off the top and can have a huge long-term effect on your returns.
5. Protect What You Have!
This is the area most neglected but is very near to my heart. “Life happens” and a serious financial setback at a late stage of your career not only ruins your day, but it can ruin many days in the future. Many articles on preparing for retirement will ignore this aspect, but I put it near the top of the list in planning. I have found that if you start with identifying common risks that can occur, you can alleviate a lot of pain and aggravation if and when something actually does happen. By addressing the possibility of a risk, you can find potential solutions in a calm and rational manner. Trying to accomplish this after an event has occurred is nearly impossible; the damage has already been done. I cover this and other aspects of retirement in more detail in my book The Big Retirement Risk: Running Out of Money Before Running Out of Time.
Nothing we’ve discussed on ways to save for retirement in this article is rocket science. The issue is more about action first and then discipline to carry out your plan to meet goals. Now might be your time to take some action and improve your peace-of-mind as you plan for retirement.
Securities offered through LPL Financial, Member FINRA/SIPC. Financial Planning offered through Lifestyle Planning Solutions, a registered investment advisor. Investment advice offered through Stratos Wealth Partners, a registered investment advisor. Botsford Financial Group, Lifestyle Planning Solutions and Stratos Wealth Partners are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
