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There are an endless number of reasons you might be late to retirement planning. Whether it’s unexpected medical bills, supporting family members, student debt, living in a high-cost-of-living area, or simply not earning enough, saving for retirement is sometimes put on a back burner.
There’s no shame in being late to the party. The point is, you’re showing up. And while catching up to your peers may feel downright impossible, there are steps you can take to do so and begin looking toward retirement with excitement rather than dread. Here are five strategies to get you started.
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1. Know which expenses are a priority
Catching up to your peers begins with using your household budget as a road map, a constant reminder of your priorities. It begins with making a list of your bills.
Once you’ve done that, go back through and prioritize them from most important to least important. “Most important” bills are the essentials you need to survive, while your least important bills are the things you can cut without worrying about having something repossessed (like a house or car) or being sued (like a loan).
Everyone’s list will be different, but it may look something like this:
- House payment
- Car payment
- Food
- Gasoline
- Daycare
- Student loan
- Utilities
- Gym membership
- Cable subscriptions
- Dining out
- Hobby supplies
- Pet toy subscription
- Video game subscription
If you’re concerned that there’s nowhere retirement contributions will fit into your list, start from the bottom and begin cutting. Those are the sources of spending that you may need to trim to free up enough money to build your retirement account.
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2. Jettison high-interest debt
If you carry high-interest debt, now is the time to double down on paying it off. The time and effort it takes to pay off debt may not be fun, but think of it this way: If you’re paying 26% interest on a credit card, paying it off is like slipping extra money into your pocket each month. That’s more you’ll have to put toward retirement.
3. Max out and catch up
If possible, max out the amount of money you can legally contribute to your retirement account each year. And, if you’re aged 50 or older at the end of the calendar year, take advantage of annual catch-up contributions. The more you put away now, the less you’ll have to worry about finances in retirement, and the faster your account will catch up to those of your peers.
4. Create additional income
Suppose you go through your budget and realize you still won’t have enough to make meaningful monthly contributions to a retirement account (even after trimming what you can). In that case, it’s time to begin looking for additional income streams. The goal is to earn enough to make those monthly contributions on which your retirement account depends.
The good news is that you can earn money doing something you love: Consider selling crafts, tailoring clothes, teaching an instrument or a foreign language, working as a handyperson, detailing cars, opening an online resale shop, or shuttling kids to and from after-school activities.
If, like most of us, you already feel stretched, consider which type of side hustle or gig is most likely to please you. Beyond enjoying the job, another thing that will please you is watching your hard work pay off as your retirement account grows.
5. Delay retirement (for several good reasons)
Before saying “absolutely not” to more time in the workforce, consider the benefits associated with adding a few years to your career:
- More time to save: You’ll have more years to contribute to and potentially grow your nest egg.
- Higher Social Security benefits: For every year you postpone retirement after full retirement age (FRA), your Social Security benefits increase by 8% — up to age 70.
- A larger pension: If you receive a pension, working longer can increase the final benefit amount.
- Employer benefits: You’ll have more time to enjoy employer benefits, like health insurance, profit-sharing, and paid vacations. While you could begin receiving Medicare, employer-sponsored health insurance is often more cost-effective.
- Potential boost to your health: Unless you have a clear idea of what you plan to do with your time in retirement, sticking with the job a bit longer can provide structure, social interaction, and overall well-being. A study published in the Journal of Epidemiology and Community Health found that working even one year beyond retirement age is associated with a 9% to 11% reduced risk of dying, regardless of health.
There’s an important caveat: Working past retirement age is not good for everyone. If your job is physically demanding, you’re suffering stress on the job, or you feel burned out, staying longer may not be good for your health. It’s far more important to take care of yourself than to stick with a job that makes you sick or carries an increased risk of injury.
Similarly, no two people have precisely the same financial needs. While a neighbor might require $1 million in a retirement account to make ends meet, your numbers may differ. The best way to get an idea of how much you’re aiming for is to develop a post-retirement budget.
Add all expected income sources, including Social Security, pension, annuity, rental property, and so on. Next, create a budget showing how much you expect to spend each month in retirement.
If it looks like your income won’t be enough to cover your expenses, that’s your “gap.” Knowing how large (or small) that gap is can help you come up with a solid savings goal.
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