Have you gotten off to a slow start saving for retirement? If so, don’t feel alone.
According to a recent report, 1 in 4 baby boomers said they didn’t start saving for retirement until they turned 50. Even worse, over one-third of them say they still have no retirement savings.
If you fit into either of these categories – don’t panic. You may have to work past your planned retirement age, but there’s still hope.
Here are four ways to catch up if you’re behind on saving for retirement.
Pay yourself first
If you haven’t been putting enough, or any, money aside for retirement – start today by paying yourself first every time you get paid, whether it be your regular wages, bonuses, tips, or commissions.
Commit to taking a percentage of your income and having it automatically deposited into a retirement plan or savings account. It’s okay if you need to start small. 5-10% is a good start.
You may be asking, “I don’t have any money left at the end of the month; how will I save anything?” You may not like the answer – you will have to cut back on your expenses.
Take a look at your spending from the last three months. What are some things that are jumping out at you that you know you really didn’t need? For example, are you dining out or having food delivered too often? Do you have too many premium cable channels or streaming services? Did you need to stop for that extra coffee on the way to work?
We can all trim some fat from our spending. It’s not enjoyable, but if you want to retire eventually, you need to make some budget cuts today.
Pay off your debts
Paying interest only helps your lender – not you, especially with interest rates being as high as they currently are. Since the Federal Reserve’s latest interest rate hike, credit card rates have hit record highs, and they’re likely only going higher.
Pay off your credit cards first. Start with the card with the highest interest rate. Once you’ve paid that card off, apply that payment to the card with the next highest interest rate. After you pay that one off, put those payments toward the next card. Continue to do this until all of your credit cards are paid off. Then, cut them all up, except one, that you’ll keep for emergencies. Don’t immediately cancel the other cards; that can bruise your credit score unnecessarily.
If you make car payments, consider trading down and lowering your payment, or pay extra each month on your current car loan and pay it off early. Your car is losing value with every mile you put on it. Don’t pay interest on an asset worth less today than it was yesterday.
Choose the right retirement account
If your employer has a 401(k) plan, participate in it. It gives you some excellent tax breaks, like reducing your income taxes now and having your investment growth taxed when you retire.
If your employer matches a percentage of employee contributions, be sure to contribute at least that much. It’s essentially free money for you.
If you don’t have a retirement plan at work, you’ll need to choose a different type of plan, like an IRA.
There are two types of IRAs: the traditional IRA and the Roth IRA.
A traditional IRA lets you deduct your contributions. Any money you deposit into your account grows tax-free until you make withdrawals in retirement. However, your contributions are lower than they would be for a 401(k).
A Roth IRA allows you to pay taxes upfront on your contributions and make tax-free withdrawals when you retire. Your funds also grow tax-free while they’re accumulating.
Once you turn 50, you can make yearly “catch-up” contributions to an IRA that increase the amount you can contribute.
Check with your accountant or a financial advisor to determine which type of IRA would work best for you.
Find additional sources of income
Nearly half of all Americans had “side hustles” in 2022. And although there are fewer older side hustlers, they tend to make more money than their younger counterparts.
Americans aged 45 to 54 made an average of $890 a month from their side hustles, while those aged 55 to 65 made around $1,060 a month.
Popular options include renting out property you own or a room in your home or reselling items on eBay or Amazon.
There are many websites you can check out that provide dozens of ideas on ways to earn extra money.
A final thought
Regardless of how little you’ve saved for retirement, it’s not too late to start or pick up the pace. Many people in their 40s and 50s have been able to build a nice nest egg before they hit their regular retirement age and begin drawing Social Security. Do your future self a favor and take the first step today.