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How Do I Make Up For Lost Time In Retirement Planning?

September 21, 2017
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I meet many people who wish they could wave a magic wand, go back in time and talk to their younger selves about the importance of saving. No one wants this power more than older investors, closing in on the year they would like to retire, and realizing they’re not as far ahead as they ought to be. Thankfully, there are steps these people can consider taking to help form a viable retirement, even when time seems like it may not be on their side.

1.Take advantage of catch-up contributions

In 2017, investors with qualified plans (401ks, 403bs, etc.) can contribute $18,000 into their accounts. If you’re 50 or older, however, the limit increases to $24,000. IRA owners who are 50 or older can also make catch-up contributions, with a limit of $6,500 as opposed to the $5,500 for younger investors. Taking advantage of these higher contributions can allow you to stock aside more funds in a short period of time.

2. Explore deferred compensation

Even after you’ve maxed out your retirement accounts, many employers offer deferred compensation to their workforce. These accounts allow you to withhold portions of your income, and those funds can be invested in the market and withdrawn at a later date. It takes discipline to not take money you are owed now, but taking advantage of this increased savings allowance can be a boon to late planners.

3. Review old insurance policies

The closer you get to retirement, the clearer your needs become. Maybe you’re paying for a large insurance policy that was appropriate when you had kids in the home, but now is more than your spouse needs. If you have permanent policies, their cash values may provide an added source of income in retirement. Additionally, products such as long-term care insurance that might not be important to a younger family can be a necessity as you age. Reviewing your insurance needs close to retirement allows you to proactively implement the coverage you need before your age and health make them more costly to obtain. This step isn't about finding more income, but about cementing some of your costs for insuring yourself before you retire. If you put this off until later, it may take up a larger percentage of your budget than you've expected.

4. Create a guaranteed income*

The pensions that our parents and grandparents had at work are rarely available these days. It is possible, however, to create a pension for yourself by utilizing an annuity. Offered by various insurance companies, an annuity is a contractual agreement that allows an investor to deposit funds with a company and allow those funds to accumulate. At a certain age, the carrier will pay the investor a percentage of their account every period. In some cases, these payments can last through not only their life but their spouse and children’s lives as well.  The benefit to an annuity when you’re behind in retirement savings is the fact that most carriers guarantee that when you start taking money, the amount they use to calculate your payments will never be less than your initial investment. This guarantee can allow investors to manage their funds more aggressively in pursuit of higher returns, because they know that, in terms of income, their initial investment will never lose money.

5. Take a hard look at your debt:

The later you are in your planning, the more difficult it becomes to increase your retirement income. Many financial advisors recommend withdrawing only 3%-5% of your nest egg in retirement, which means even $10,000/year in income needs could require savings of $200,000 to over $300,000. Eliminating debt and lowering your monthly income needs might be a more attainable solution. Mortgages, consumer debt, even services whose bills could be reduced (does anyone watch all of the channels on their premium cable package?) can help drive down your monthly expenses. Concentrating some of your disposable income towards paying off debts may be a wise choice for your retirement, especially if you haven't saved enough to live off of your investments when you stop working.

6. Leverage your home

We can be very sentimental about our homes, and rightfully so. They are the places where we create memories, raise our children, and where we envision spending our retirement. But if you’re behind on retirement planning, leveraging your house can provide unexpected income. If you have significant equity in your house, you might sell and use the majority of your proceeds for retirement needs.

Building a sustainable retirement is a give and take process, and one that can change rapidly the closer you get to quitting time. Kicking yourself for the years that you’ve lost is unproductive. Research your options and analyze your true income needs, and there may be a manageable path towards retirement that is closer than you think.

*All Guarantees are based on the financial strength and claims-paying ability of the issuing insurance company.

The information presented is not intended as financial advice, and you are encouraged to seek such advice from your financial advisor.