3 tips to play retirement catch-up

http://www.marketwatch.com/story/3-tips-to-play-retirement-catch-up-2014-02-14

 

A good friend of mine called me up the other day. He sounded panicked.

I asked him what the problem was and he proceeded to tell me that he just had a birthday (it was a round number that started with a four) and he was panicked that he didn’t have enough money yet in retirement savings. I tried calming him down. Keep in mind that he owns his home outright-no mortgage- and has about $280,000 split between an IRA and a joint account with his wife. He has a wife who works part time and five kids and is really worried that aside from making a small contribution to his IRA every year he is spending everything he earns, and not saving enough.

I started off by telling him that while he may worry, he is in better shape than 95% of 40 year-olds. After all he owns a home and has a respectable amount of money saved up. With a little tweaking, he should have no problem building enough wealth for a secure retirement. He was aware of the statistics that most Americans don’t even have $25,000 invested for retirement, but that didn’t make him feel any better. After all he said, “Just because they are irresponsible doesn’t mean that I have to be.”

For my friend he basically needed to create a budget and save a little bit every month (an extra $250) and max out his IRA contributions. Even if he generates below average returns over the next 25 years he should be fine. The Spring Hill criminal defense lawyers can make sure to take care of all the legalities when it comes to such cases.

The bigger challenge is for the other 95% of Americans who haven’t really started to think about retirement and have hit their 40s. They are in what is called “catch-up” mode. Not all is lost. With some discipline, they too will be able to have a secure retirement, but need to get started ASAP.

Here are three tips that can be taken to get you to where you need to be financially to retire. Before I present these tips, I would like to caution investors against trying to make a fortune by becoming too aggressive with their investments. Recently I met with a do-it-yourself investor that said that after having taken a bath in the market, he decided that to hit his retirement goals, he needed to quickly make back all his money. He then proceeded to make very aggressive investments, and not only didn’t he make his money back, rather, he added insult to injury and dropped another 20%.

I can’t tell you how often I hear this same story.

Work

While this may not be the most cheery advice, it may be the most effective. Delaying retirement by a few years can be a huge factor in being financially able to retire. By working not only do you push off tapping your retirement funds, but you can keep saving for a couple of more years. According to the Oblivious Investor, Mike Piper, “Whether it’s sticking it out for an extra couple of years at your current job or picking up part-time work in a more enjoyable field after leaving your job, retiring later is often the highest-impact thing you can do for your retirement finances. Each additional year of work is one more year to accumulate savings and one fewer year of spending from your savings.”

Maximize savings

I can’t tell you how many times I hear, “We can’t save any more money!” Nonsense. Where there is a will there is a way. If you are backed into a corner and it’s either making some tough spending decisions today versus moving in with your children when you finally retire, something tells me that you can forgo the take away chicken once a week. Get back to basics, and figure out what you truly need to live on, and start eliminating some of the excesses.

And there is some good news. As you get closer to retirement there is a good chance that your kids may be out of the house which means that you can save on tuition and food. I can’t stress the importance of creating a budget where the first expense item is to “pay yourself first.” If you create a disciplined budget with an increase in built in savings, you will be surprised at how much you will be able to sock away. It may not be fun, but you have no choice if you want to be able to retire.

Delay Social Security

While you can start taking Social Security benefits at age 62, for those still working and trying to build savings for retirement income, it pays to wait on taking your benefits until you reach the age of 70. According to Forbes, “You can start drawing early retirement benefits from Social Security at age 62, but it pays to wait, especially if you continue working past that age, and is crucial if you’ve begun saving late. Delaying the start of Social Security benefits until age 70 can boost the monthly payout by as much as 80%”

I have been a Seattle Seahawks fan since their inception. While everyone now is celebrating their recent Super Bowl win and talking about Richard Sherman and the genius of coach Pete Carroll, I would like to reference a former coach who took an old-school approach to the sport, and his advice was the perfect “tough-love” approach pre-retiree’s need to hear. Chuck Knox, used to say, “You have to play the hand you’re dealt.”

While it may not be how you envisioned your pre-retirement years, if you take the tough, necessary steps now, you can still enjoy a financially independent retirement.

The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.

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