Mornings on the beach, golfing with friends, picking up an old hobby… retirement is an exciting life stage for many Americans. However, if, for whatever reason, you started later than most in your retirement savings, you may feel like you’ll never be able to achieve that much-deserved reprieve.
If this applies to you, don’t worry. If you’re starting late, you’re not alone, and there are countless strategies out there to help maximize savings in the time you have left. Above all, know that it’s not too late to save — and the best time to start is now.
Figure Out How Much Savings You’ll Need
Experts suggest withdrawing no more than 3-4 percent of your savings for each year of your retirement. Calculate your year budget and expenses, and multiply that by the number of years you’ll be in retirement to determine a baseline savings amount. For example, if your yearly budget is $30,000, and you expect to be in retirement for 20 years, you should set a goal of $600,000 for your savings.
Use Compounding Interest To Play Catch-Up
When you start saving in your first years of employment, it’s harder to contribute more than the minimum amount. This is because your income and wages are usually at their lowest. If you’re starting later, your presumably higher income can help you to contribute more per month, which will help you in the long run due to compounding interest.
Don’t Take On Too Much Risk
Traditional retirement accounts offer a 7 percent return on your investment. While there are other investment options that may offer you more return on your investment, you may also lose your principal at a time when it is incredibly risky. Consider diversifying your portfolio and, if you do invest in more risky options, make sure you have enough saved in other places to protect you in case of emergency.
Pay Down Your Debts Now
Though it may be tempting to focus all your extra income on saving for retirement, it’s important not to forget about your present-day debts. These balances will only increase over time, so paying them down now will save you money and hassle in the long run. Improving your credit score will also allow you to (hopefully!) pay less interest if you decide to purchase a new home during your retirement.
Take On A Balanced Approach
As stated before, there are many tempting ways to make a quick buck that may be tantalizing if you are starting your retirement savings later. However, losing your principal investment at this point could be devastating. Remember that along with your own investment, you may be eligible for Social Security from the federal government, and you can continue to collect on other investments even after retirement.
If you’re still feeling confused or conflicted about saving for retirement, an expert at Donohoo Accounting Services can help. We’ve been assisting our clients with their financial and tax needs for more than two decades. Contact us today to schedule your free consultation! For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!