Time is every saver’s best friend, and if you’ve hit middle age with nothing banked for retirement, you might feel like it’s too late to start. It’s not — but now is the time to adopt a something-is-better-than-nothing perspective on your finances.
“I always tell my coaching clients that even if they’re late to the retirement savings game, doing just a little is better than nothing,” said Catie Hogan, head of curriculum and founding financial coach at the AI-powered personal finance app Parthean. “If you only manage to save a small amount in your 40s and 50s, it is always better than doing nothing at all. It’s never ever too late.”
It might not be too late, but you should feel an intense sense of urgency. The clock is ticking and you’ve lost most of the time-based potential of compounding.
But don’t panic just yet.
Even if you’re in your late 50s, you still have roughly a decade of saving, investing and growing until you reach your full retirement age. If you’re in your early 40s, on the other hand, you still have the better part of a quarter-century to make something out of nothing.
The key is to start turning nothing into something right away.
Considering how far behind you’ve fallen, you don’t have time for the mistakes you’re sure to make by going it alone. Even though you need to save every dollar you can, you should invest some of those dollars in professional help.
“The best thing you can do if you are in your 40s or 50s and have no significant savings is to consult a financial expert who can give a detailed breakdown of your personal situation and the options available,” said Sam Dallow, accounting, finance and tax expert at Counting King, a business funding and tax firm.
There are many types of credentialed professional designations — including certified financial planner (CFP), chartered financial consultant (ChFC) and chartered financial analyst (CFA) — as well as alternatives like money coaches, financial advisors, financial coaches and retirement planners, who may or may not be credentialed. Research the different services they provide, their different fee structures, whether they are fiduciary and how they are regulated before you agree to anything.
Your goal is to save as much money as possible as quickly as possible if you’re ever going to catch up. The only way not to waste precious time and dollars along the way is to organize your financial life and look for fat to trim.
“The first step is to create a budget and identify areas to cut expenses and save more,” said Tony Abazi, senior mortgage loan officer and client financial advisor at Neighborhood Loans.
Go with a pay-yourself-first strategy like 50/30/20, which allocates 50% of every paycheck to needs, 30% to wants and 20% to savings.
Ideally, you’d increase your 20% savings at the expense of your 30% wants, at least until you regain some lost ground.
“This might involve making some sacrifices and adjusting your lifestyle, but it’s crucial to prioritize saving for retirement,” said Abazi.
Financial planner Andrew Lokenauth, founder of Fluent in Finance, agrees that now is the time to put your future security above your current comfort level — at least for a while.
“Move to smaller, less expensive housing,” he said. “Drive your vehicles for longer instead of upgrading them often and moderate discretionary spending like dining and entertainment — and make sure to maintain budget discipline even as your contributions grow.”
You should start by building an emergency fund in an FDIC-insured savings account. Without one, you’ll eventually cancel all your progress by tapping your credit cards to manage the next unforeseen expense. But once you have three to six months’ worth of expenses in the bank, it’s time to start growing your money by investing — but not in a standard brokerage account that doesn’t offer the tax advantages associated with dedicated retirement accounts.
“Take advantage of employer-sponsored retirement plans like 401(k)s and contribute as much as possible, especially if your employer offers matching contributions,” said Abazi. “Consider opening an individual retirement account (IRA) and contribute the maximum allowable amount each year.”
Alternatively, you might consider an after-tax Roth IRA — you can fund either type of IRA alongside an employee-sponsored 401(k) — but seek guidance from your financial professional before you commit.
In 2023, the IRS allows you to contribute up to $22,500 to a 401(k) and $6,500 to an IRA. But once you turn 50, you can stash an extra $7,500 in your 401(k) for a total of $30,000. In the case of IRAs, you can contribute an additional $1,000 once you turn 50 for a total of $7,500.
Catch-up contributions are intended to help those who’ve falling behind on saving later in life, so don’t let the opportunity pass — stuff every dollar the IRS allows into a tax-advantaged account. If you don’t have extra dollars with which to catch up, search for them wherever you can.
“Explore part-time work or consulting options to extend your income,” said Lokenauth. “See if unused vacation or sick time can be cashed out and discuss working longer with your employer. Being able to work a few extra years can make a big difference.”
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