by Chris Hogan
A popular and dynamic speaker on the topics of personal finance, retirement and leadership, Chris Hogan helps people across the country develop successful strategies to manage their money, both in their personal lives and businesses. His new book, Retire Inspired: It’s Not an Age; It’s a Financial Number released in January 2016 and is a number-one national best seller. You can follow Chris on Twitter at @ChrisHogan360 and online at chrishogan360.com.
Time seems to fly past us like a speeding train. It can feel like you graduated from high school yesterday, but then you blink and get an e-mail about your twenty-fifth reunion. Another blink and you have tenure at work and two kids at home. When did all that happen? You may feel this way, especially when you look at your retirement fund. Life happened, you blinked, and now you’re behind on your retirement savings.
If this describes you, don’t get discouraged. You can still enjoy an inspired retirement. Depending on your age and income, you can make up for lost time and catch up on your retirement savings. Even if you’re close to retirement age, you can make changes that will allow you to feel secure about your financial future.
Get rid of debt
Debt payments are stealing from your future. Get mad! Then decide to get rid of it. Use the debt snowball method. When you’re done, all that extra cash can go toward your retirement. And, yes, pay off your mortgage. You may get a tax break, but that deduction doesn’t compare to the interest you’re paying every year. Imagine how much money you could put toward retirement if you were debt-free!
Ramp up your savings rate
Look at the percentage of your salary you’re putting into your company’s retirement program (if you have that option). The second thing to check is whether or not you’re taking full advantage of any company match. Your company may match your contribution up to a certain percentage of your income. If your company matches four percent but you’re only investing three percent, you’re missing out on free money!
If you’re like many people, you participate in a savings program but you just aren’t investing enough. Once you’re debt-free, you need to invest at least 15 percent of your annual income for retirement. Saving seven or eight percent of your net pay isn’t enough! Generally speaking, you can contribute $18,000 a year to a 401(k). If you’re 50 or older, you can use the catch-up option and bump your contributions to $24,000 a year. There are some income restrictions, though, so check into those.
If you are intensely inspired about your retirement, you can also contribute to an IRA (traditional or Roth). You can invest up to $5,500 a year if you’re under 50 and up to $6,500 if you’re 50 or older. You may not be able to max out your giving every year, but putting away a little extra is better than nothing.
Ramp down your lifestyle
In order to ramp up your savings, you may need to say goodbye to some of the extras you’ve come to enjoy. Drink office coffee instead of spending six bucks a day on lattes! Ditch all those cable channels, and use a streaming service instead. Stop trying to keep up with the Joneses; they’re up to their eyeballs in debt! And as you get raises and bonuses, keep your lifestyle the same. Making more money doesn’t mean you need to spend more money!
Downsize your home
This may seem extreme, but it may be the best choice — especially if you’re empty nesters with more house than you need. Use the profits from the sale to pay off debt, buy a smaller home or condo, and throw the extra at your retirement savings. You might even consider relocating to another part of town (or part of the country) with a lower cost of living.
I understand your attachment to your home. You’ve made memories inside those four walls. But memories can’t pay the bills when you’re retired. Besides, it’s not the location that matters, it’s the people you’re with. You can create new memories wherever you are.
Delay retirement until age 70
I know, you probably want to retire as early as possible. But if you’re behind on your retirement savings, you may have to work longer that you originally thought. There are two reasons you may want to hold off a few years:
1. Your investments have more time to grow. Remember, time and compound interest are critical components to successful investing. You may not think working and investing an extra five years would matter that much, but let’s do a little math as an example.
Let’s say you put $1,000 in a money market account that gives you three percent interest a year. In one year, you’d have $1,030. In five years, you’d have roughly $1,160. Time plus compound interest equals more money — and that’s with just $1,000 in a money market account! Think about an extra five years for your investments to grow!
2. Delaying retirement until 70 can mean more Social Security benefits. Some people assume that they must sign up for, and start taking, Social Security payouts at the “full retirement age” set by the government. The earliest you can take them is age 62, but your benefits will be reduced.
Right now, full retirement age is 67 for those born in 1960 or later. However, if you wait until age 70, you may qualify to get more than 100 percent of your benefits. For example, anyone born in 1960 or later who delays retirement until 70 may get 124 percent. That’s a lot of money! Keep in mind, though, that the rules for Social Security are ever-changing. So, as you get closer to retirement age, stay informed. You don’t want to be caught off guard.
Catching up on your retirement savings means sacrificing some extras right now — like a huge vacation or a newer car — so you can enjoy the benefits later. You can’t change the past, but you can prepare for a secure and dignified future. It takes determination, hard work, and patience, but you can do it! If you stay focused on your goal and keep working your plan, you can enjoy a dream retirement!