Retirement Planning for Late Starters: How to Catch Up

Retirement planning is a crucial aspect of financial planning that everyone should start early on in their careers. However, due to various reasons such as student loans, low income, or simply not having enough knowledge, some people may not have started planning for retirement until later in life. These individuals are often referred to as “late starters” and may face unique challenges in catching up on their retirement savings.

In this article, we will discuss strategies for retirement planning for late starters to help them catch up and secure a comfortable retirement.

Start Now

The first and most important step for late starters is to start now. Time is a critical factor in retirement planning, and the later you start, the more challenging it can be to catch up. However, it’s never too late to start. By starting now, even if you are in your 50s or 60s, you can still make significant progress towards your retirement savings goals.

Set Realistic Goals

When it comes to retirement planning, it’s crucial to set realistic goals. This means understanding your current financial situation and setting achievable goals based on your income, expenses, and lifestyle. For late starters, it’s essential to be realistic about how much you can save and how much you will need in retirement. This may mean adjusting your retirement lifestyle expectations or working a few years longer than originally planned.

Maximize Your Contributions

One of the best ways to catch up on retirement savings is to maximize your contributions to retirement accounts such as 401(k)s, IRAs, or Roth IRAs. For 2021, the maximum contribution limit for a 401(k) is $19,500, and for an IRA, it’s $6,000. For those 50 or older, there is an additional catch-up contribution limit of $6,500 for a 401(k) and $1,000 for an IRA. By contributing the maximum amount allowed, you can quickly boost your retirement savings.

Consider Delaying Social Security Benefits

Delaying Social Security benefits can be a smart strategy for late starters who need to catch up on their retirement savings. For every year you delay taking Social Security benefits beyond your full retirement age, your benefit amount increases by 8% until you reach age 70. By delaying your benefits, you can increase your monthly income in retirement and make up for lost time in saving for retirement.

Explore Part-Time Work or Side Hustles

Another way to catch up on retirement savings is to explore part-time work or side hustles. This can provide you with extra income that you can put towards retirement savings. Additionally, it can help you delay retirement and continue working longer, giving you more time to save for retirement.

Consider Downsizing

Downsizing your home or lifestyle can also be an effective way to catch up on retirement savings. By reducing your housing costs or other expenses, you can free up more money to put towards retirement savings. Additionally, downsizing your home can provide you with cash that you can put towards retirement savings or use to pay off debt.

Work with a Financial Advisor

Working with a financial advisor can be beneficial for late starters who may feel overwhelmed or uncertain about their retirement savings. A financial advisor can help you create a retirement plan, set realistic goals, and develop a savings strategy to help you catch up on your retirement savings. Additionally, a financial advisor can help you navigate any investment decisions and provide guidance on how to allocate your assets to maximize returns and minimize risks.

It’s important to choose a financial advisor who is experienced in retirement planning and understands the unique challenges faced by late starters. Look for an advisor who has a fiduciary duty to act in your best interests and who is transparent about their fees and services.

Maximize Your Retirement Contributions

One of the best ways to catch up on your retirement savings is to maximize your contributions to retirement accounts. This includes contributing the maximum amount allowed by the IRS to your 401(k) or other employer-sponsored retirement plan, as well as contributing to an IRA.

For 2021, the maximum contribution limit for a 401(k) is $19,500 for individuals under the age of 50, and $26,000 for individuals over the age of 50. The contribution limit for an IRA is $6,000 for individuals under the age of 50, and $7,000 for individuals over the age of 50.

While it may be challenging to make significant contributions to retirement accounts later in life, every little bit helps. Consider making small increases to your contributions each year until you reach the maximum contribution limit.

Consider Delaying Retirement

Delaying retirement is another option for late starters who need to catch up on their retirement savings. By delaying retirement, you can continue to earn income and make contributions to your retirement accounts, while also allowing your existing retirement savings to grow and compound.

Additionally, delaying retirement can help you increase your Social Security benefits. For every year you delay claiming Social Security benefits beyond your full retirement age, your benefits will increase by 8% until age 70.

Downsize Your Lifestyle

Another way to catch up on your retirement savings is to downsize your lifestyle. This may include downsizing your home, reducing your expenses, and cutting back on discretionary spending.

By reducing your living expenses, you can free up more money to contribute to your retirement accounts. Additionally, downsizing your home can free up equity that you can use to pay off debt, contribute to retirement accounts, or invest in other assets.

Consider a Second Job or Side Hustle

If you’re able to work more, consider taking on a second job or starting a side hustle to increase your income and accelerate your retirement savings. This may include freelancing, starting a small business, or taking on part-time work in your field.

While working more may be challenging, it can help you catch up on your retirement savings and build additional skills and experience that can be beneficial in retirement.

Final Thoughts

It’s never too late to start saving for retirement, even if you’re a late starter. By working with a financial advisor, maximizing your retirement contributions, considering delaying retirement, downsizing your lifestyle, and exploring additional income opportunities, you can catch up on your retirement savings and build a comfortable retirement.

Remember, every little bit helps, so don’t be discouraged if you’re starting late. With dedication, discipline, and a solid plan, you can achieve your retirement goals and enjoy a fulfilling retirement.