There seems to be more and more articles published about how to start saving for retirement later in life, while reassuring older investors that it is “never too late.”
The real truth is, there is a cutoff point.
In situations like we are in now, some people will tap into their retirement savings; others may have spent it all, or haven’t even thought about retirement. And here we are, closing in on it. It makes for having tough conversations.
‘It’s Never too Late to Start’
In our business, we always say it’s never too late to start. But I think it depends on how you’re going to handle your retirement. If you are in your sixties, and are planning to retire in a year but you haven’t saved a dollar, obviously, that is not going to work. I cannot make that work. The toughest part, for me is, having to say that to someone.
If you were sixty, and you plan to retire at sixty-two, you can receive social security to help supplement your retirement. However, know that you won’t receive your full benefit. You will receive 75 percent of your entitled benefits. That’s why it’s extremely important to be able to supplement your retirement.
Average social security benefits for a woman today is about $15,000 a year. I don’t think any of us can really live on $15,000 a year as our only income. And that’s an obvious reason why you need to start saving as early as you can. The harsh reality is you’re going to have to work several years into your planned retirement, if you don’t start saving.
You Can ‘Catch Up’ in Your 50s
If you are in your fifties and haven’t started saving for retirement, it’s not too late. The first step in all of this process is you have to start saving. As soon as you realize that you haven’t thought about retirement, which I think is the biggest and most important step, start saving. The sooner you start, the better off you’re going to be. There are a few things that you can do that will help you in this process.
Use your catch-up contribution opportunities in your 401(k) or IRA. Once you hit the age of fifty, you are allowed to save more into these retirement programs. That’s up to an extra $1,000 to your IRA, and $6,500 to your 401(k), that you can annually start putting aside in your retirement accounts in an effort to speed up your retirement savings.
You don’t want to get too aggressive with your retirement investing, because you do not want too much risk in your portfolio. Basically, you don’t have time to recover. When people say they’ll “try” investing in cyber currency, like Bitcoin, because it looks like quick money, I say, think about it. What might happen overnight, your retirement assets are not going to have time to recover, are they? You don’t want to use your retirement money to invest in risky investments. At this point, you want to be more conservative. You don’t have the time to lose it, so you have to look at the risk reward ratio. You must remove the substantial risk, because you don’t have enough time to recover.
There is always a great opportunity out there. You know, you hear about people making several thousand dollars overnight in their portfolios. You absolutely can do that, but the odds aren’t necessarily in your favor. If you take that risk, and you get the big quick hit, and you lose half of your retirement portfolio, what are you going to do? What’s your plan? I tell my clients it’s much better to be conservative and take the long-term view on investing.
Perhaps You Shouldn’t ‘Swing for the Fences’
There are people that want to hit home runs overnight and think they’re going to do it. Just because someone else has done it, doesn’t mean you will.
Pay off your debt. You don’t want to go into retirement with large debt, especially if you’re not going to have significant income, it’s going to be very difficult to pay it off.
Some clients have earned great incomes during their careers, but when they retire, even with a decent size nest egg, it might not be as large as they would like in order to continue their previous lifestyle. Many times, people with multiple houses must consider selling. The proceeds from one of those houses could get them through their retirement years. The problem is they have a hard time parting with a property where they raised their family there. We know it’s where they want to be. But we break down the numbers and show them that it’s just not going to work for them financially if they stay in the house. This type of conversation is more about showing them, not just telling them.
A similar situation occurs in the case of divorce. The wife and mother does not want to leave the house that she received from the divorce settlement, especially if her children are with her. But financially, it may not make sense to stay.
Even though these are tough conversations to have, we know that people sometimes don’t realize the financial consequences they will face without making sacrifices. That’s our job. It is also our responsibility to have those honest conversations and make sure their goals and their expectations are realistic. Retirement planning later in life is not recommended. Obviously, the sooner you start, the better off you’ll be – like in your twenties, from your very first job. But each situation is different. If you can talk to somebody about what this is going to look like down the road, you’re going to be far better off than those that didn’t.
If you want to have a conversation to make sure you’re doing everything in your power to retire on time and have a fulfilling and exciting retirement, please contact me here at Hefren-Tillotson. You’ve worked your entire life for these assets and you should be able to enjoy them in your later years. I would happy to help.