Retirement Savings for Late Starters: It Is Better Late Than Never!
Written by Dongmiao Cui   


Even though most strategies on investment retirement assumes that you start planning early, preferably right out of school, you do not need to worry if you are a late starter, just like many other people. There are a few things you can do to help you catch up.


Option 1: Deal With Your Debt

Refinancing or paying off your debt when you still have regular income can relieve you from debt pressure after retirement. If you cannot pay off debts early, you still need to figure out how much more debt you will have to pay back after you retire.  Similarly you might also need to make projections on other costs such as your insurance payment for your post-retirement period. Working out a budget can help you pinpoint where you want to be and how much effort it takes to attain your goal.  Read A Comprehensive Guide to Debt Management for more details on this topic.


Option 2: Consider a Reverse Mortgage

Paying off your home before retirement also prepares you to qualify for a reverse mortgage after you retire. With a reverse mortgage, you will get paid by a lender for monthly mortgage payments while living in your house for as long as you wish.  You need to be at least 62 to be considered for a reverse mortgage. There are no minimum income or credit requirements.  Reverse mortgage is a desirable supplement to Social Security and it creates regular income for seniors without risks of losing money.


Option 3: Reduce The Risk of Your Investments

In the middle or late stage of your career, investment risks become one of the biggest threats to your retirement plan.  Especially as a late starter, you might have been tempted to invest more aggressively in risky instruments such as stocks, hoping to catch up faster. However the risk of dramatic market turbulence that may shrink your outweighs the extra money you might be able to make. Therefore you want to select safer investments such as bonds and low-risk mutual funds.

You probably also want to avoid purchasing shares of new companies or stocks with thin trading volume as their prices can be easily manipulated.


Option 4: Manage Your Spending and Save More

Many people try to save at least 10 percent of their income during working years. But if you start planning for retirement late, you need to consider saving up to 20 or 30 percent if possible to catch up. More retirement plans allow you to increase savings once you pass age 50. With a 401(k), for example, you can increase from $ 16,500 to $22,500 per year.

You can also consider selling your home high and moving into cheaper retirement neighborhoods. You can choose to save or invest the money you made from the sale.


Option 5: Delay Social Security

You can delay collecting Social Security as long as you are younger than 70. You want to save the bulk of social security income after you retire. Since this income is adjusted with inflation and tax, and guaranteed by the government, it provides perhaps the safest and most stable source of income. It is probably a good idea to save the most stable income source for the time when you may need it most.


Option 6: Exploit Tax Efficient Plans

When it comes to saving or investing for retirement, tax efficiency is one of the most important factors to be considered. Especially when you are already starting late, you need utilize your IRA and 401 k because they are tax efficient.



 
Last Updated on Wednesday, 22 December 2010 06:28