If you're late to retirement planning, beating yourself up about it accomplishes nothing. As someone who's had to start over more than once, I'm here to tell you that it's possible, and the further down the road you get, the more confident you'll feel. There's no reason to be among the eight in 10 Americans who doubt they'll have enough money to support an ideal retirement. However, it will take focus and a plan you can stick with.
How drastic your plan will need to be depends on how many years you have left before retirement. The following four steps can help you determine what needs to be done and create a plan that works for you.
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1. Live below your means
My husband and I were hit hard by the 2008 housing crisis. There were times I doubted we would ever rebound. It took everything we'd saved and invested to climb out of a financial mess that still strikes me as surreal. And then, just as we were getting on our feet, I started getting sick.
After dropping tons of money on doctors, medical tests, experimental procedures, and alternative treatments, we learned that I had an old-fashioned brain tumor. It's next to impossible to complain about the money spent because I'm now healthy, and, frankly, I'm too grateful. However, we did find ourselves starting over again for the second time in less than five years.
Here's the most important lesson we learned (and one of the big reasons we're on track for my husband to retire): Live below your means. There was a time that we spent like we had a money tree in the backyard to pick from whenever we ran low. Every time we received a raise, we incorporated it into our everyday budget, assuming that promotions and raises would continue to roll our way.
That mindset left us in a precarious position when hard times hit. Once it was clear that I would recover, we committed to living in a way that prioritized saving and planning for a rainy day (or year). We don't save what we have left after bills are paid. We budget what's left over after we feed our savings and investment accounts. That has meant buying a less expensive home, taking fewer vacations, and driving cars until the wheels threaten to fall off.
2. Max out retirement contributions
At the same time, we realized that we no longer had the luxury of contributing 2% or 3% to our retirement accounts. We had to go full-throttle, which was possible with our new commitment to living below our means. There's a reason "max out retirement accounts" is listed in most "how to catch up with peers" articles. It works. What's strange is how much easier it's been than I imagined.
We contribute to two main retirement accounts, both pre-tax. This means we won't pay taxes on the income until we make withdrawals in retirement, when we expect to be in a lower tax bracket. Since taxes aren't withheld from those earnings, we're paying less in taxes right now, helping to offset the amount we're contributing. In other words, it really doesn't sting like I was afraid it would.
3. Delay retirement
You may hate hearing this, but if you're behind, it may be necessary to rethink when you'll retire. Once we turned over a new leaf, we realized my husband would need to work until 70 to reach our final retirement goal. While I don't ever want to retire, I know he does. However, there are some advantages to working past his full retirement age (FRA) of 67:
- My husband's Social Security benefit will rise 8% annually between his FRA and age 70. Those are dollars we'll be glad to have in retirement.
- Since my husband has health insurance through work, we won't have to rely solely on Medicare until he's 70.
- Working longer allows us to delay when we begin withdrawing from our retirement accounts, giving them more time to grow.
- My husband, a natural introvert, gets to keep his social skills alive and well.
- Because he has no idea what he wants to do with himself after retirement (other than work on a classic car he has yet to buy), it gives him more time to plan his post-retirement days.
- We continue to be mentally stimulated. Both my husband and I have always worked in jobs that challenge us. Remaining mentally stimulated is important to help maintain cognitive function and possibly reduce the risk of dementia.
- It could help him live longer. Research suggests a connection between working past traditional retirement age and better health, including a reduced risk of chronic diseases.
4. Focus on high-interest debt
Although it's a worthy goal, no rule says you must be entirely debt-free by retirement. However, you want to focus on jettisoning high-interest debt and avoid taking that debt into retirement with you. The sooner you get rid of it, the more time you have to put the money you paid in interest toward your retirement funds. If you're unsure where to begin, both the snowball and avalanche debt payoff methods are incredibly effective.
If you're behind in retirement savings, you'll need to make changes to turn the ship around. However impossible it may sound, changes are within your power.
