It's Never Too Late for Retirement Planning

Leah BuryOctober 25, 2021


Money in rubber band with note reading "don't touch"

According to the Fed’s 2018 Report on the Economic Well-Being of U.S. Households, only 36% of non-retired adults feel that their savings plans for retirement are on track, and 17% of people between the ages of 45 and 59 say they have no money saved for retirement.

We have some positive news for you: it’s never too late for retirement planning. Whether you’re staring down retirement in a few years or you’re looking for a way to catch up before you hit a certain age, it’s time to make smart investment decisions and grow your long-term savings.

Looking to bolster your retirement plan?

Schedule an Amplify Wealth Management appointment with our colleagues at CUSO Financial Services (CFS).

Your Ideal Type of Retirement

Have you thought about what your retirement might look like? Maybe you’ve imagined taking a lot of trips, or maybe you’re dreaming of gardening all afternoon.

Retirement looks different for everyone, but it might be helpful to start with a basic understanding of three basic retirement types.

  • With super retirement, you imagine being able to travel, wine and dine, and live a leisurely life. Obviously, this requires the highest level of savings.
  • For a sustained lifestyle, you need to save up to be able to live just as you were when you were working. Your budget, lifestyle, and habits will look mostly the same.
  • And finally, for reduced circumstances, you’ll be cutting back and spending more modestly.

There’s no right or wrong category—but it’s important to figure out which category of spending you’ll most likely land in. When you estimate what your current savings will be able to provide, you’ll be better equipped to adjust your expectations.

Estimating Social Security Benefits

Can you depend on social security? And if so, how much per month will you receive? The Social Security Administration has a calculator that can help you figure out what this number looks like, but given fluctuations in the economy and the size of the retirement population, no one can truly predict what Social Security will look like in thirty years.

When planning out your retirement savings, think about how you want to consider your potential Social Security benefit. Whatever amount this is, it’s probably best to not make it a large portion of your retirement income.

Consulting a Financial Advisor

If you’re not sure how far your savings will get you in retirement, or if you’re confused about your potential Social Security benefit, it’s time to consult a financial advisor. They can help you evaluate your current financial situation and your retirement needs, making sure you have enough savings for the type of lifestyle you want, but also helping you to plan for the retirement you need. Because retirement looks different for everyone, this article can’t offer the specific help you might need to make the best financial decision for you.

Prepare Your Finances for Retirement Savings

The first place to start—before any retirement accounts or investing–is with your own finances. It’s a crucial step towards making sure you have enough for retirement.

Eliminate High-Interest Debt

Start by eliminating any high-interest debt you have as soon as you can. If you continue to pay off this debt with only minimal payments, you’ll spend much more money paying interest instead of paying down the principal.

After your debt is paid off, you can start contributing to your retirement savings. Retirement investment accounts all take advantage of something called compounding interest, and it’s important to understand how this works. We’ll go over that later on in this post.

Reduce Discretionary Spending

The more money you can put towards your retirement now, the better. Look at your budget and cut wherever you can. If you’re still decades from retirement, cutting your budget will allow you to make the most of the investment years ahead of you. If you’re close to retirement, cutting your budget is more important than ever.

Increase Your Earning Potential

Just as you’re reducing your expenses, consider ways to increase your income. You can start a side hustle like tutoring, dog sitting, or giving lessons. If you can identify some ways to bring in extra income, you can make sure your retirement is getting the boost it needs.

After working on your budget, paying off debt, and increasing your income, put any extra amount you can toward your retirement accounts. Investing has the potential to make that savings grow, and the more time your investments have to generate interest, the better. Investment accounts take advantage of a critical concept: compound interest.

Compound Interest

When you put money into an investment account, it will earn a certain percentage in interest every year. Each investment portfolio is different, but let’s walk through a very simple example. If you’d like to, you can pull up a compound interest calculator and work out the example as you read along.

You have $5,000 in a retirement account and it’s invested in the stock market. The market returns an average of 7% interest. Every year that interest is reinvested into the account.

This is what your balance will look like after one year:

Year One: $5000 + $350 (7% of your balance) = $5350.

In year two, instead of earning 7% on just $5000, you’ll earning 7% on $5350.

Year Two: $5350 + $374.50 (7% of your balance).

You didn’t contribute anything more, but your investment is making more money. In fact, it will probably continue to make more money, year after year. In twenty years, that same $5000 will be $19,348.42—without any extra contribution on your part. How much would you make if you contributed every year?

For example, if you started with $5000 and contributed $5000 every year, you would have $238,674.31. You only contributed $100,000, but ended up with more than double. This is the power of compound interest!

This is a very basic example, and the stock market certainly isn’t predictable from year to year. But the basic idea remains the same: if you contribute regularly to a retirement investment account over a long period of time, you can turn a small amount of money into a larger amount.

Retirement Accounts

Ok, so you have your budget, you understand compound interest, and you’re ready to contribute as much as you can. You’ve talked to a financial advisor and you have your retirement accounts picked out. But what strategies can help you make the most of your savings?

Make Auto Contributions

If you’re set up to have monthly contributions pulled from your paycheck, great! You’ve already made an important step. If you haven’t put much thought into how much you’re contributing, take another glance. Use a compound interest calculator to figure out how much the account will be worth in 10, 20, 30 years. If you can contribute more, it may really help to boost your retirement savings.

If your employer offers a matching contribution, be sure to take advantage of it! It’s a benefit given to you by your employer, and it’s essentially free money. Make sure you understand how much you need to contribute in order to get the full match, and make sure you also understand when that employer contribution will be vested. Every employer and 401(k) is different—sometimes vesting takes only two years, and in other situations, it can take longer.

Adjust Your Investment Mix

The way you allocate your investments has a great impact. Your investment mix will depend on your time horizon and your level of risk tolerance. When you’re younger, you can take advantage of riskier investments like the stock market, where you can benefit from the highest return potential. The stock market can experience significant fluctuations, but you have the time you’ll need to make up for any losses.

As you get closer to retirement age, your risk tolerance decreases, and you’ll most likely benefit from an investment mix that allows for a good balance of growth and stability.

Make Catch-Up Contributions

If you are age 50 or older, you may be able to contribute up to $1,000 more to IRAs—these are called catch-up contributions. Catch-up contributions are an option for various types of retirement plans, including employer-sponsored 401(k)s, traditional IRAs, and Roth IRAs.

For 401(k) participants, the catch-up limit for 2021 is $6,500 in addition to the standard limit of $19,500 limit, so you’d be able to contribute $26,000. For IRA participants, the catch-up limit for 2021 is $1,000 in addition to the standard $6,000 limit.

Catch-up contributions can be a valuable way to boost your retirement income, especially if you started saving for retirement later in life.

You’ve Got Time

The best time to save for retirement is as early as possible. Whether that’s age 23 or 53, saving is better than not saving at all! If you haven’t started saving yet or feel behind, you’re not alone. But decisions you make right now can greatly impact what your retirement looks like. Using the strategies we’ve shared, you can maximize your savings to the best of your ability and aspire to achieve your vision for retirement.

* Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer Member FINRA/SIPC and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

Before deciding whether to retain assets in an employer-sponsored plan or rollover to an IRA an investor should consider various factors including but not limited to: investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock. Before you elect to open an IRA account and engage your investment representative, please review all account statements and disclosure documents related to the IRA and services to be provided under a new relationship and consult with a qualified tax advisor as needed. If transferring an existing retirement plan into an IRA, you should be aware that (i) Those assets will no longer be subject to the protections of ERISA (if applicable) (ii) depending on the investments and services selected for the IRA, you may pay more or less in transaction costs than when the assets are in the Plan, (iii) if you are between the age of 55 and 59 ½, you would lose the ability to potentially take penalty-free withdrawals from the plan, (iv) if you continue working past age 70 ½ and transferred your plan assets to a new employer’s plan, you would not be subject to required minimum distribution and (v) withdrawing assets directly would be subject to federal and applicable state and local taxes and possibly be subject to the IRS penalty of 10% if under age 59 ½.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018.

Talk to a CFS Financial Advisor

Want to take your retirement plans to the next level? Schedule an Amplify Wealth Management appointment with our colleagues at CUSO Financial Services (CFS).

Leah Bury

Leah is a financial writer based in Austin, Texas. Her articles include advice on investing in real estate, starting small businesses, and optimizing savings. Leah also does some freelance graphic social media work for local creatives.