Five Steps Late Bloomers Can Take to Ensure a Smooth Retirement

Forbes Finance Council

August 9, 2016

If you’ve turned 30, you ideally should have already started planning for retirement. But if you haven’t begun yet, you’re not alone. A study from the National Institute on Retirement Security found that more than 45% of working-age households don’t own any retirement account assets. As a result, many will even start aggressively investing for retirement when they finally reach their 40s or 50s.

More and more people are waiting until later in life to start planning for this vital stage of their life, but that doesn’t mean you should. Delaying your retirement isn’t like postponing a term paper. Instead, it gets exponentially more difficult the later you put it off. The beauty of starting early is that you have decades to see the power of compound interest and investment gains work their magic. When you start later, you have to make up all those gains with your own capital.

But that’s not to say you should panic. Even if you’re 50, there’s still 20 years (at least actuarially) for a portion of your investments to grow and compound. And if you don’t want to track every single penny in an Excel spreadsheet, you can find ways to free up excess cash.

Even if you are a late bloomer, there are options to get ahead in your retirement savings without completely scrambling.

1. Start saving now

This is admittedly a no-brainer, but freeing up money for retirement later in life is a lot more complex than merely stashing away any leftover bar money in your 20s. To start putting away the right amount now, you’re going to have to be far more aggressive, while also juggling all the big expenses one has to deal with later in life.

A great solution is the 50-30-20 plan. Penned by Elizabeth Warren and Amelia Warren Tyagi in All Your Worth: The Ultimate Lifetime Money Plan, it’s a great way to balance saving and spending without counting pennies. The 20 is 20% of your take-home pay, and it should be used to invest in yourself (in this case, towards retirement). No matter what, this portion is non-negotiable if you want to retire.

The 30 is 30% of your income, which should be allocated to your discretionary spending. Think anything that’s a “want,” such as a night out for drinks.

The remaining 50% goes towards your essential spending or needs, such as your mortgage, utility bills and groceries.

2. Consider a part-time retirement 

Just because the government says you can retire at age 65 doesn’t mean you have to. Consider part-time retirement as a perfect way to bridge the gap in your retirement savings. This can help you to continually build your retirement fund, or at least maintain it at its current level.

This isn’t and shouldn’t be a faux solution of just grinding away at your full-time job for decades longer either. Even for retirees who have saved comfortably, this is an appealing option because it allows them to maintain a sense of purpose through part-time employment. This is even a chance to pursue a passion project you’ve always wanted to take on, since you’re not tied to a full-time career or fully dependent on the income.

3. Hold off on social security

If you’re taking your benefits before full retirement (age 65), it’s not a wise move, since your benefits are reduced. Although you can start receiving Social Security at age 62, the Social Security Administration will penalize you pretty heavily. For example, a $1,000 benefit at 65 years old would be reduced to $800 if you instead took it at 62.

On the other hand, showing up late to the party will allow for increased benefits. For every year you delay after full retirement age, you’ll see an increased benefit until the age of 70. Each year you postpone taking social security benefits, your benefit increases by 7 to 8%, and possibly more depending on your work history.

4. Take full advantage of your 401(k)

If you’re playing retirement catch up, it helps to have someone on your side. So if you have an employer who provides an employer match, it’s an obvious choice to ease the scramble by making your investing power stronger. If you’re not taking advantage of this, you’re essentially leaving free money on the table.

Even if you’re employer doesn’t provide a match, 401(k)s can harness the power of tax-free growth to help you catch up, and the taxes during withdrawal may be paid in a lower tax bracket in retirement because you have less income. Allowing your money to grow without taxes can at least partially replicate the missed time your investments had to grow.

If you’re in your 50s, you should take even further advantage of this. Currently, the contribution limit is $18,000 per year, but there is an additional $5,000 allowed for those aged 50 and older to catch up even more. This can make a huge difference when you’re trying to bridge the gap late in life.

5. Relocate

In retirement, you’re no longer bound geographically to your career. Especially if you’re in an expensive area because of a hot job market, you can see huge reductions in your living costs by moving. According to CNN’s cost of living calculator, a $50,000 salary in Manhattan is comparable to a $21,036 salary in Daytona Beach, Florida, where the cost of living is much less.

Even if you aren’t moving to Florida, relocation can also result in big savings on taxes. For example, in Georgia, your Social Security benefits can be exempt from income tax, and you can even enjoy most other retirement income without state taxes (up to certain limits). Doing this is a great way to boost your income without investing more money (plus, you might end up somewhere tropical).

It’s never too late to start creating a successful financial future – retirement or otherwise. By taking it a step at a time with a solid game plan, you too can ensure a successful retirement.

This article was written by Forbes Finance Council from Forbes and was legally licensed through the NewsCred publisher network.

The strategies mentioned in this article will often have tax and legal consequences; therefore, it is important to bear in mind that First Republic does not provide tax or legal advice.  This information is provided to you “AS IS”, does not constitute legal advice, is governed by our Terms and Conditions of Use, and we are not acting as your attorney. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained here.  Clients’ tax and legal affairs are their own responsibility – Clients should consult their own attorneys or other tax advisors in order to understand the tax and legal consequences of any strategies mentioned in this article.

The views of the author of this article do not necessarily represent the views of First Republic Bank.