If you're like many Americans, you're way behind in your retirement planning, and you may think you're doomed. It's true that the best retirement plans involve starting early and saving aggressively, but even if you're 50 and woefully unprepared, you're not entirely out of luck.
You're not alone, either, in being behind. According to the latest Retirement Confidence Survey by the Employee Benefit Research Institute, 60% of American workers have less than $25,000 saved for retirement (excluding the value of their home) and 36% of American workers have less than $1,000 saved for retirement. These numbers are not much better when you zero in on older folks. Among those aged 55 and up, 41% have less than $25,000 socked away, and only 54% have even tried to calculate how much money they'll likely need in retirement. (Many of those who have tried may be underestimating, too: 33% of those 55 and older think they need to accumulate less than $250,000.) These Americans don't seem to be executing the best retirement plans.
So what can you do to prepare for retirement, especially if you're a bit late in thinking about it? Well, a lot. Here are some ways to devise and carry out the best retirement plans.
Now that you're ready to start building a comfortable retirement, do so in earnest. Starting late means you'll need to be more aggressive in how much you sock away. The old "save 10% of your income" guideline isn't enough for many of the best retirement plans. My colleague Chuck Saletta has shown that in order to accumulate $1 million dollars in 15 years beginning at age 50, you'll need to sock away at least $3,000 each month. Know that you can park $5,500 in IRAs in 2014 (plus an extra $1,000 if you're 50 or older) and up to $17,500 in 401(k)s (plus another $5,500 for those aged 50 or older). And, of course, you can always save and invest even more in regular, taxable accounts, too. If you're carrying any high-interest-rate debt, such as from credit cards, aim to pay that off pronto, too, as it will restrict your ability to save.
Playing it safe and investing in slow-growth vehicles can work when your money has decades to grow. But if you're late to the party, the best retirement plans will involve taking on more risk -- though not a ridiculous amount. Lottery tickets and penny stocks are far too risky, while savings accounts and CDs are offering less than 1% or 2% in interest, which is not nearly sufficient to build wealth over time. A broad-market stock index fund, however, can be a relatively low-risk way to let your money grow briskly. The stock market has averaged annual gains of about 10% over long periods. And if you're ready and willing to select individual stocks, many sport dividend yields of 3% or more while appreciating in value, too.
Unless you're currently collecting a hefty paycheck, it might be hard for you to imagine how you'll sock away so much money in a short while. So spend some time brainstorming ways to spend less and bring in more. You can accomplish a lot by cost-cutting, such as weaning yourself from your cable company or forgoing your annual trip to Mexico. Think, too, about how you might generate more income. A part-time job might be an unwelcome thought, but a $15-per-hour, 12-hour-per-week job can generate more than $9,000 per year. Think of jobs that might even be fun for you, such as tutoring kids in math or turning a hobby into a paid gig. Or think even further outside the box, perhaps taking in a boarder for a while, downsizing your home, or selling an extra car. But bear in mind that the best retirement plans don't make you feel deprived or unhappy as you build your nest egg.
Be patient and disciplined
It's great that you're finally thinking of your future, and taking some critical steps now can make a huge difference in retirement. But it won't happen overnight, and you need to maintain discipline. If you somehow manage to save $10,000 in your first year, that might not seem life-changing, but over a decade you might save $100,000 or more, which can produce several thousand dollars a year of additional income in retirement, complementing Social Security or pension benefits. A nest egg you can live off of will need to be even larger, though, with most folks requiring $500,000 or more. The best retirement plans require you to remain committed to your long-term goal.
Finally, accept that you might need to delay retirement for a few years while you bulk up your nest egg even more and delay paying for health care on your own. If you've saved $240,000 by age 65, for example, and you can work three more years while your money grows by an annual average of 8%, it will top $300,000. A strong stock market as you approach retirement can provide a great tailwind, but a weak market might set even the best retirement plans back. Delaying Social Security benefits is another way to augment your retirement income, as it will boost your eventual benefit by 8% per year. Be flexible in your goals, too. You may want to amass $1 million before retiring, but you may also find that you can do just fine on less. Be prepared for surprises and unexpected developments, too, such as a job loss.
These tips aren't designed for each and every individual. Spend time learning more and thinking about your particular situation and what the best retirement plans are for you. Take action today, and you'll thank yourself tomorrow.
Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.