Getting A Late Start To Saving Doesn’t Have To Be Scary

October 31, 2017

“Mommy, was there electricity when you were born?”

This was the very serious question asked by my 8 year-old a few days ago. After explaining to her that yes, I was born after electricity and after dinosaurs became extinct, she seemed happy with the answer and skipped off.

But her question had me thinking about retirement — something about having a 4 in front of your age plus your kid thinking you were born prior to electricity gets you thinking about that. Then as I relayed the story to my friends, they started talking about their own fears of retirement, most of them centered around not starting early enough.

I guess that’s the great part about being in your 40’s — you are old enough to learn and recover from past mistakes, yet young enough to still have time to build a nest age. I reminded my friends of this fact.

There’s actually a lot you can still do in 10-20 years that can prepare you for a reasonable retirement:

Strategize paying off debt: The smaller your expenses, the further your money will go in retirement, so work now to get all debts paid by the time you retire. For example, use a mortgage payoff calculator to estimate how much extra you would need to pay each month in order for your mortgage to be paid by retirement. Also, use the Debt Calculator to estimate when you will get out of debt and also to come up with a debt repayment strategy. With tax season right around the corner, this could be a great use of a future tax refund.
Max out your retirement plan: Face the music and run a Retirement Estimator to see how much of your income you may be able to replace when you retire. Ideally, you want to be able to replace at least 70-80%. If you got a late start saving for retirement, consider upgrading your retirement savings as opposed to upgrading your car or your home. Make maxing out your retirement plan a goal. For 2017, the maximum you can put into your employer retirement plan is $18,000, and it goes up to $18,500 for 2018. If this seems impossible, at least start with the employer 401k match and use features such as auto escalation to automatically increase your contributions until you hit the limit. If you get annual pay increases, consider increasing your contributions in the month you receive a pay increase — you can even have ½ the pay increase go to your retirement plan and keep the other half to spend today.
Get your investments working hard to help you retire: A friend of mine used to always say that he worked too hard for his money to have it sitting around in a 401k plan doing nothing. Consider using tools like CNN Money’s Asset Analyzer to find the best investment mix for you. If you’re still unsure or want a simpler option, consider using a Target Date Fund.
Keep your priorities straight when it comes to your kids’ college: The kindest thing you can do for your children’s future is to prioritize your retirement above paying for their college education. Think of it this way: what is more loving — to help your kids find a cost-effective way to get a college degree or for you and your spouse to spend 20+ years of your retirement sleeping on your kid’s couch because you did not save for retirement?

Getting a late start to saving doesn’t mean that a comfortable retirement is out of reach. It just takes a little bit more commitment to make it happen. Taking these steps will go a long way toward helping make it happen whether you’ve been saving for 20 years or just 20 months.

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