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June 30, 2016 | retirement

It's Never Too Late for Retirement Planning

If you are within 20 years of retirement age and have yet to begin planning for said retirement, you basically have two choices:

  • Continue to do nothing and let the chips fall where they may
  • Get going on an accelerated catch-up plan that begins today

If you are choosing the first option, then there is no need to read further. Good luck with all that. If, on the other hand, you are ready to get serious about the financial piece of your post-career life, then read on.

No Retirement Planning Regrets

Firstly, you are not alone. According to a study by the Federal Reserve, “Thirty-one percent of non-retirees have no retirement savings or pension, including nearly a quarter of those older than 45.” One of the reasons for this is that, according to a different study by the Schwartz Center for Economic Policy Analysis, fewer and fewer companies are offering retirement plans. (Although the same study points out that many people who do have such planning opportunities ignore them.)

Secondly, there is no point in kicking yourself for getting this far in life without taking any steps to plan for retirement. Whatever your reasons, this is your reality -- so what’s done is done. Focus instead on the future and not what got you into this predicament, because you can get out of it with diligence and some hard work.

Envision What Retirement Looks Like For You

Ask yourself what you want your retirement to look like. There are basically three different types:

  • Super Retirement, in which bucket lists are fulfilled and life is lived in a grander fashion than it ever was before. This is usually how retired seniors are pictured in television commercials; traveling, wining, dining, and generally cavorting in a carefree manner.
  • Sustained Lifestyle, in which the retiree continues to live just as they have when they were working.
  • Reduced Circumstances, in which compromises are made to address the new reality of having less income.

Which one you get to experience depends on a number of factors, such as family obligations, health, and luck – but mostly it depends on retirement planning.

Social Security

For many years we’ve heard that Social Security is underfunded and will either disappear at some point in the future or be greatly reduced. A discussion of the merits and sustainability of the Social Security system is a topic for another day, but it should be pointed out that if you’re relying solely on it to carry you through your golden years – even if it continues to function properly – you are going to have some very lean times. At most Social Security should be treated as a supplement to your retirement income, not as your retirement income in its entirety. In a perfect world, you would plan for retirement without even factoring it in at all.

At Last, a Budget!

You can get away with not having a budget when you’re younger because you have the gift of time to recover from excesses and sloppy personal bookkeeping. When you enter into catchup-retirement planning mode, however, a budget becomes mandatory. Now that you are on the clock, all your efforts must be directed at controlling spending through a tracking system. The future is no longer some blurry thing far over the horizon line, it is now just around the corner and you need to fund it. This isn’t to say you have to live like a hermit in a shack to make your retirement planning work, but you do need to make yourself accountable.

Debt-Free by the Time You Retire

Clear the books. While being debt free is generally a good idea at any point in life, it is especially important when heading into retirement. With your income fixed, there is not a lot of wiggle room in your budget for mortgages, car payments and, most costly of all, paying off credit card bill accumulations from years past. Work now to pay those down to nothing so you don’t have to worry about them later after your income has been reduced.

Work As Hard As You Can, While You Still Can

While paying your debts down to nothing, you’ll also want to be stockpiling a money reserve for use during retirement. If doing both of those things simultaneously sounds like a neat trick, it is. You can go a long way to achieving it by getting the most out of your greatest resource: yourself. Now is the time to work for your future by freelancing or even taking on an additional part-time job. Unfortunately, when you get a late start on retirement planning you don’t get to wind down your career. Instead, you almost have to end it in a blaze of glory, working harder than ever so that you really do get to retire and not have to keep working indefinitely. And that when you do retire, you get to stay retired and not have to go back to work in your seventies or eighties.

Maximizing Retirement Planning Opportunities

There are other ways to brace yourself financially for your golden years. These include:

  • Full Potential 401(k): If you are fortunate enough to work for an employer that matches 401k contributions and you haven’t been taking advantage of what amounts to free money, then start doing so immediately. Your contribution should, at the very minimum, match your employer’s maximum contribution. Beyond that, you need to be contributing as much of your salary as you can, all the way up to the federally mandated maximum, which is currently $18,000 (but which is adjusted upward as inflation dictates).
  • Catch-Up Contributions: Federal law also permits an annual catchup contribution for those who are over 50 years of age. The figure is currently $6,000, but it, too, is nudged upward via periodic review.
  • Downsizing: One way to get a jump on retirement is to downsize sooner rather than later. By moving to a smaller home you will reduce your monthly nut and sock away the difference. If you are fortunate enough to turn a profit on the sale, that’s even more money for your retirement plan.
  • Extending Your Career: You may have to work a few extra years to ensure that your retirement is on a more solid footing. Obviously, if you love what you do, this won’t be a hardship. If you don’t, well… In either case, working longer will not only give you extra time to save, it will keep you from tapping into your retirement reserve that much earlier.

So, if you have waited until late in the game, fear not: the situation is not hopeless -- but it is urgent. The time for procrastination has passed. Before you go to bed tonight, do at least one thing to start your retirement planning journey. It can be something as simple as drawing up a preliminary budget. That way, when you wake up tomorrow, you’ll be on your way to a more secure future.