Getting an early start at saving for retirement may be a goal you've had since starting your first job. But as you ventured into the world of being an adult, you may have realized that life doesn't always work out as planned. Necessary bills -- and maybe a few unnecessary ones -- took priority, and your savings goals got put on the back burner.
Now, you've gotten a handle on your bills but you're older and wondering if you can make up for the years of missed savings. It's never too late to start, and these three actions can help you get on the right track.
If you can start saving when you're young, you should. But if that's impossible for you, beginning late is always better than never beginning at all. Starting when you're older can provide you with the benefit of a higher income, as well as more disposable income. The median income for someone between the ages of 20 and 24 is $33,280. That number increases to $59,488 if you're between the ages of 45 and 54. Leveraging this higher income by saving more will help you make up for missing out during your younger years.
The IRS also provides a catch-up provision that gives older savers higher contribution limits. If you're under the age of 50, you can contribute $6,000 each year to an IRA and $19,500 to a 401(k). If you're over 50, you can contribute $1,000 more to an IRA and $6,500 more to a 401(k). Earning a 10% rate of return on average per year while maxing out your 401(k) will earn you $130,954 at the end of five years. If you're eligible to tack on the extra $6,500, you'll end up with $174,605. The longer you can take advantage of this catch-up provision, the more impact it will have on your overall savings goals and your chances of saving enough money for retirement.
Control your expenses
You save enough money for retirement so that you can cover your future expenses while you're no longer working. If you have fewer costs, you'll need less money.
The first way you can control your expenses is by paying off your current liabilities. You can achieve this by paying more than your required payments each month. Every dollar counts toward reducing your principal and interest owed so you should aim to tack on as much extra money as you can with each payment that you make.
If you're having issues finding the money for extra payments, revisit your budget. Keep track of your expenses for at least a month and make sure you separate your essential spending from your non-essential spending. Try reducing some of those non-essential items each month and apply your savings to your long-term bills like your mortgage.
The second way you can control your expenses in retirement is by maintaining your current lifestyle rather than upgrading it. When you receive extra income, unless it's absolutely needed, take that extra money and put it into your savings instead of spending it. When you make a purchase, ask yourself if you're buying something that you really need or something that you want. You can still buy some of the things that you want; just remember that the higher your expenses, the harder it will be to achieve your retirement goals.
Working longer may not have been in your initial retirement plan, but if you find yourself in a position where you can't save more or reduce expenses, you can work longer. Just delaying retirement a few years will give you more years for saving and paying off debt. Because you'll be retiring later, you'll also need less money saved for covering your expenses in retirement.
Working longer might not seem ideal, but before you decide against it, consider this: Life expectancies have gotten a whole lot longer since Social Security was first created in 1935. . That means you'll probably be spending a lot more time in retirement than your great-great-grandparents did, so you can retire later than they did while still having plenty of time for enjoying your senior years.
Work during retirement can also be redefined. If you create a retirement plan and discover that you won't have enough money, you can work just enough so that you can cover your gap in income. You'll still have plenty of time for the things you love in retirement if you can work part-time instead of full time.
Getting a late start at retirement planning doesn't mean that you can't retire -- it just means that your retirement dream may get slightly altered. Retirement is different for everyone, and it's OK if the road getting there doesn't look the way you thought it would. You're the driver and in control of what your retirement will be. The amount of effort and work you put into it will determine how successful you are, no matter how old you are.