Spending lavishly and not thinking of your future expenses or retirement benefits can put you in a great fix. Proper planning of your finances at an early age, preferably right from the time you start earning is the right way to secure your finances.
Though most people have a retirement savings planned on early in life, there are some who neglect the retirement needs totally. If you belong to the latter category and think it is too late to start saving for retirement at 50, fortunately you can still do it!
It’s high time you devoted some attention to your financial planning. Even if you have been lax in your retirement savings, you can still benefit from the moves you make and the tax breaks.
But since you have started out late, there will be a few lifestyle changes that will be needed.
Setting Goals While Saving For Retirement At 50:
So you have had the wakeup call albeit a bit late. That’s okay – all is not lost.
The first thing you need to do is take a look at the various investments and savings that you have done so far.
The amount of savings depends mostly on the expenses you make and of course your lifestyle. The pension plan, social security and medical bills also should be taken into account.
Underestimating the spending is something that many senior citizens resort to. This can get them into trouble, if the expenses start to escalate after retirement.
How You Can Save:
Saving for retirement at this stage in the game is going to take some discipline. First of all it needs to be a top priority! You need to allocate at least 10% of your gross income to your savings.
Setting aside money can be done in two ways. One way is to consider paying down debt at higher interest like credit cards. So if you give out 20% towards debt in credit card, you get 20% return immediately for the amount you repay.
Saving funds is the other method. You can benefit from the 401 (k) plans where the amount saved is not added to the income of the current year.
The investment made in the retirement funds increase without tax deductibles until they are cashed when you get only the nominal tax rates.
In case the 401 (k) plan is not applicable in your job, you can try setting up a retirement account either at a brokerage or mutual fund company with an IRA. Whether you use an IRA or 401k, both will give you great tax sheltering!
Savings done from funds acquired by a second or side job is also a good way that has tax benefits. The income you earn on the side can be saved without tax in some special plan present for self-employed persons.
Investing can also be started at 50 based on your needs and risk preference. Going for cash instruments is not a wise move as they will not generate quickly enough for your needs.
Investing equally in bonds and stocks is necessary to see an appreciable growth in the investment portfolio. So avoiding the cash instruments is needed.
Prioritize Savings Over Expenses:
The routine daily expenses are one of the key reasons for many to renege on saving for their retirement. Lingering debt is something that most retirees face. The loans and family responsibilities are big hurdles to be dealt with at 50.
Studies reveal that a majority of homeowners reaching their retirement age still have to complete their mortgage payments.
Opinion is split on paying off the mortgage as soon as possible to save retirees being burdened by the mortgage. Retiring with a huge mortgage will further affect the retirement finances.
Preparing For Eventualities:
You need to foresee unexpected expenses like medical bills. Though insurance covers all medical costs, the scaling down of lifetime coverage on health by some companies can affect the savings.
To prevent this from happening you need to factor in the future medical expenses while planning for retirement savings at 50.
Reduce Your Debt:
In case you have a huge amount of balance in your credit card and you keep paying only the minimum amount each month, it can affect the potential money you can save for your retirement.
Paying the minimum amount required on the credit card can land you in deep trouble. You need to start focusing on eliminating the balance in your credit card and complete payment of the balance amount every month.
This method frees up a sizeable amount of money that you can put up as saving for your retirement over the long term.
Though it may be difficult to carry out, you need to make some timely adjustments in your lifestyle like
- Buy a used car instead of a brand new one
- Reduce the times you eat out
- Move out to a less expensive home or you can also rent an apartment
- You can also plan on finding a less expensive area to live in after retirement
These measures can reduce the expenses considerably, so you get to have some savings eventually.
There are retirement plans where the employer transfers money directly from the paycheck into the investment account. Increase your work skills to get a raise in your income. You can also start saving at least half of the raise you get.
Since savings is all about being disciplined and channeling your money towards safe pathways, you need to be consistent in what you save. Since saving for retirement at 50 is a bit of a late start, it will be more like running a marathon than taking a slow stroll. However no matter what the outcome, it is always better to start late than never. So start saving now.
Images courtesy of FreeDigitalPhotos.net