4 Tips To Get On Track

For Retirement If You Started Late

by Thomas Walters // January - February - March 2019

You are in your 30s or 40s, and you realize you haven’t saved much for retirement yet. Don’t panic ... there’s still time. And I’m here to share four tips to help you save for retirement if you got a late start.

1. Max out retirement funds. Make retirement savings your top priority. If your employer offers a 401(k), 403(b), or other type of retirement account, contribute as much money as possible. You can find the maximum contribution limits for a 401(k) or 403(b) plan on the Internal Revenue Service’s (IRS) website. These limits are updated annually, and the IRS allows eligible taxpayers who are 50 or over to make an additional catch-up contribution, the amount of which is also updated yearly. You may also qualify to contribute to an Individual Retirement Arrangement, or IRA, of which there are two types: Traditional and Roth. Traditional IRA accounts allow you to potentially defer taxes on your contributions today, while Roth IRA accounts allow you to withdraw tax-exempt money in retirement if all requirements are met. Most taxpayers are eligible to contribute to a traditional IRA, and your contribution might be (fully or partially) tax-deductible, dependent upon your income and whether you’re covered by a workplace retirement plan. The IRS changes these income limits annually, so check their website or IRS Publication 590 for the most current limits. Alternatively, most taxpayers are eligible to contribute (fully or partially) to a Roth IRA if their income falls within certain limits. Consult the IRS website for a full breakdown of eligibility for both types of accounts. Regardless of whether you choose a traditional or Roth IRA account, the IRS says you can contribute up to the maximum annually limited by the lesser of earned compensation or the IRS limit.

2. Pay off debts. Another priority is to eliminate debts as quickly as possible. I encourage you to review your budget and make a plan to pay off your debts. Start by tackling high-interest debt, such as credit cards. If you’ve had an issue with credit card debt in the past, you might consider switching to a debit card or all-cash lifestyle as a safeguard against getting into further credit card debt in the future. Once you’ve repaid your credit card debt, tackle any other outstanding debts, such as student or car loans. You may need to make major changes in your budget to boost your retirement contributions and repay debts. Consider cutting back on restaurant dining, clothing, vacations, and other discretionary purchases, or find ways to boost your income on the side. In some cases, you may need to take more drastic measures, like replacing your car with an older model or downsizing your home.

3. Pay off your home. Ideally, try to retire after you’re mortgage-free, so you won’t have to worry about paying that bill. Here’s one trick: start paying your mortgage every two weeks instead of monthly. Let’s say your mortgage payment is $2,000 per month. Rather than pay the full amount each month, divide the amount in half — to $1,000 — and send this in every two weeks. Because there are 52 weeks a year, you’ll send in 26 payments ($26,000), rather than 12 payments ($24,000). As a result, you’ll make an extra payment. This allows you to pay off your home more quickly than you otherwise would, and may accelerate your progress to retiring mortgage-free. Check with your lender first to make sure you don’t have any early prepayment penalties.

4. Rethink retirement. Lastly, imagine how you’d like your retirement to look. Can you work part-time? Could you generate other streams of income, such as rental property income or royalties from creative work? Could you freelance or consult on the side? Or, could you move to an area with a lower cost of living? The more flexible you are, the better your chances of enjoying a more financially secure retirement.

Don’t worry that you’re starting late. If anything, take some comfort that you’re starting at as young of an age as you are today. You can still enjoy a secure retirement if you’re focused and motivated to make this a priority.

Thomas Walters

Allstate agent and owner of Walters Insurance Agency.