How to Get on Track to Reaching Your Retirement Goals When You’re Late Getting Started
Life can be unpredictable, and sometimes, planning and starting to save for retirement doesn't happen as early as we'd like. Maybe you’ve been through a divorce, a business setback, you were under-employed, or maybe you simply didn’t even consider saving for retirement when you were younger.
In a recent blog post, I defined the term “financial late bloomer” as someone who actively started managing their money and building wealth later in life.
You may be a financial late bloomer if you identify with some or all of these statements:
You are behind in saving for your retirement
You have prioritized spending your money on others
You had a lower income in the past and are just now starting to make what you would consider a “good” income
You experienced a major life event that set you back financially such as a divorce
You’re ready to bloom!
Do you identify with any of this? If so, you’re definitely not alone! I am a financial late bloomer myself and really just started getting my financial life together in my 40s.
When it comes to saving for retirement specifically, I’m not going to sugar coat it - catching up on retirement savings is more challenging than starting early, especially with the magic of compounding interest. So if you’re younger and reading this, don’t wait to get started!
If you are a late bloomer, with determination and the right strategies, you can still achieve your retirement goals.
In this post, I’m going to share with you a step-by-step approach that you can use to catch up and set yourself on the path to a secure retirement. Within each step, go ahead and pick and chose the strategies that will work for you.
Step 1: Get Ready to Save
The first step in catching up on your retirement savings is to get ready to save. You need to set the stage of the next steps to come. Depending on your situation, you may need to:
Make a Spending Plan: Learn to budget effectively. I recommend zero-based budgeting and giving every dollar a job. I am a certified YNAB coach so YNAB is definitely my budgeting platform of choice but there are other great tools out there. Heck if you want to use old school cash envelope budgeting using a fancy binder or accordion folder, go for it! Chose a method that works for you that will be sustainable. This step might take some serious introspection about your relationship with money and your spending patterns. Don’t forget to budget for your annual or infrequent expenses like Christmas gifts, annual subscriptions, and auto maintenance.
Pay Off High-Interest Debt: High-interest debt can significantly hinder your ability to save. Focus on paying it off as quickly as possible to free up more money for your retirement. There are lots of different approaches to paying off debt like the snowball method or the avalanche method and you should choose one that will work for you (and don’t worry about the online gurus who tell you there is only one “right way” to doing this).
Save an Emergency Fund: An emergency fund helps you avoid dipping into retirement savings when unexpected expenses arise. The amount of your emergency fund will depend on your situation but, yes, you need to have one. Check out this post for more on emergency funds.
Find a Coach: A money coach (ahem, hi) can help you decide on your plan of action and support and encourage you as you work through these steps. This is of course optional.
Step 2: Decide on Your Retirement Goals
Next, you'll need to determine your retirement goals:
Determine Your Retirement Budget: Think about what your retirement lifestyle will look like. How much income will you need each month? Create different versions of your retirement budget to understand various scenarios.
Assess Your Starting Point: Take stock of your current savings and investments. Knowing what you have today will help you plan better.
Consider Any Major Retirement Moves: Think through different major moves. For example, are you planning to sell your house? Will you work part-time during retirement? Will you stay in your current area or move to a different location? These big decisions will impact your retirement needs.
Step 3: Figure Out Your Monthly Retirement Savings Goal
Once you have your retirement goals in mind, it's time to figure out how much you need to save each month:
Identify All Sources of Future Income: Include projected investment income, government pensions, work pensions, and any other benefits or income sources you expect to have in retirement.
Use a Retirement Calculator: There are many free retirement calculators online to try and they will all likely give you different results. For Canadians, I recommend the Canadian Retirement Income Calculator. Plug in different numbers and play around with various scenarios. Don't worry—nothing will break! Experimenting with these tools will give you a better idea of what you need to save.
Integrate Savings Goal into Your Budget: Once you have a savings goal, incorporate it into your monthly spending plan as best as you can. You may need to make trade-offs now to ensure you can meet your retirement goals. What can be adjustment to make room for this new or increased savings amount? What big moves might you have to consider to get on track?
Step 4: Implement Your New Plan
Finally, it's time to put your plan into action:
Make Regular Monthly Contributions: Set up automatic transfers to your retirement accounts to ensure you consistently save each month. This is ensure you’re making those contributions. Even better, set them to leave your account right after pay day.
Revisit Your Progress Regularly: Periodically review your progress and adjust your plan as needed. Life changes, and your retirement plan should be flexible enough to adapt to those changes. Get to know and love those retirement calculators. If desired, meet with a fee only financial advisor who can create a more in depth retirement plan with you.
Conclusion
In conclusion, getting on track with your retirement savings, even if you’re starting late, is entirely possible. It requires careful planning, disciplined saving, and regular reassessment of your goals and progress. This is not always easy - sometimes it might mean trade offs in your budget or or big moves. By following these steps and staying committed to your plan, you can work towards a secure and fulfilling retirement.
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