In my 20s, I was always one check engine light away from financial disaster. I worked a low-paying local newspaper job with no 401(k) match. No matter how frugal I was, my low paycheck and lingering debt from my college years didn't leave much extra money for investing.
When I finally left that job after a decade, I had to face the reality: I was 33 years old with absolutely zero retirement savings. I'd missed out on a decade's worth of compounding returns.
I'm 38 now, and I've mostly turned things around. My brokerage account projects that I'll be able to retire comfortably by the time I'm 60, though I hope to work longer.
If you haven't started investing yet or, like me, you're getting a late start, it's not too late. Here are five things I did to make up for lost time.
1. I prioritized finding a job with a 401(k) match
When I started job hunting, I made a company 401(k) matching contribution one of my must-haves, along with better pay. My current employer matches my contributions dollar for dollar on the first 4% of my salary. That amounts to a 100% return on that contribution, even before my money gets invested and begins compounding tax-free until withdrawal.
Of course, finding a new job that pays more and offers a matching 401(k) is easier said than done. Bear in mind, though, that this was back in 2016, several years before the Great Resignation. In 2022, as businesses compete for workers, you're in a much better position to land a job with generous pay and benefits.
2. I started maxing out my Roth IRA
A 401(k) match is a great benefit. But with most employer-sponsored retirement plans, your investment options are somewhat limited.
After I'd taken full advantage of my company contribution, I started using the extra money I now had courtesy of my bigger paycheck to max out my Roth IRA, which is funded with after-tax dollars -- and no tax is due at withdrawal. I've done so every year since 2017, and I plan to do so again this year.
Because I'm under 50, I can contribute $6,000 in 2022. If you're 50 or older, you're allowed an extra $1,000.
3. I took advantage of the stock market crash
I typically practice dollar-cost averaging by automatically investing $500 in my Roth IRA each month. That meant that when the stock market crashed in March 2020, I'd only contributed $1,500 for the year.
To take advantage of rock-bottom prices, I maxed out my contribution for the year early. I invested the remaining $4,500 in a lump sum in early April 2020.
Typically, it takes about seven years to double your money based the average annual S&P 500 return of about 10%. But because I invested when the market was still reeling, the $4,500 I invested in April 2020 has roughly doubled in less than two years.
Major stock market crashes only happen about once a decade, on average. But if you're in a position to take advantage when they occur, it's worth pouncing on the opportunity.
4. My risk tolerance is high
Some traditional asset allocation rules base the mix of stocks versus bonds you should have entirely on your age. For example, the rule of 110 says your correct stock allocation is 110 minus your age. Because I'm 38, that would mean I should have 72% stocks and 28% bonds.
I'm ignoring those rules for now. I can afford to take on more risk in exchange for better returns because I still probably have another two or three decades in the workforce. Stocks make up about 90% of my portfolio because my money still has plenty of time to recover if the market tanks.
5. I'm not using retirement funds for a home purchase
I hope to buy a home at some point. But as a single woman living in the Tampa Bay area -- which Zillow projects will be the nation's hottest real estate market in 2022 -- that's going to be a challenge.
Because the housing market is so competitive, it's tempting to raid my retirement accounts for a down payment. For example, you can always withdraw your Roth IRA contributions tax- and penalty-free, and as a first-time homebuyer, I could withdraw an additional $10,000 of earnings from tax-deferred savings. A loan from my 401(k) account for a home purchase is also allowed under my employer's plan.
As enticing as these options sound, I'm not using retirement funds to buy a home. After getting a delayed start to investing, I can't afford to miss out on any more compounding time -- even in a sizzling real estate market.
What to do if you're behind on investing
Getting a late start to investing means you'll have to invest more money -- there's no way around it. If you can't find the extra money in your budget to invest, then you may need to pursue a side hustle or think seriously about switching jobs.
Before you start investing, aim for accumulating at least three to six months' worth of savings. Also, try to pay down high-interest debt, particularly credit cards, because the interest rates are typically higher than average investment returns.
Start with the goal of investing enough to get your employer's full 401(k) match, then try to max out your Roth IRA contribution. If you have extra money to invest from there, you can contribute extra to your 401(k) or invest in a taxable account.
But don't delay investing even if you don't have much extra cash. Even investing $50 or $100 a month can grow into serious money over time.