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Perhaps you've always meant to start saving for retirement, but life's little surprises always seem to derail your plans. If you suddenly find yourself in your 40s or 50s with a shrinking time horizon and few savings, you're not alone-13% of workers between ages 40 and 59 haven't saved a penny for retirement*. Here's the good news: A little planning and some savings discipline can help you make retirement a reality down the road.
Set nest egg-spectation
Before you can implement a plan, you have to develop one. Start by calculating how much you'll need fore retirement. Experts often recommend between 70% and 80% of your pre-retirement income to maintain a lifestyle similar to the one you had before retiring.
Now you need to get serious about saving. You can probably find areas in your current budget where you can cut back on spending. Consider detailing your essential expenses (e.g., mortgage, Insurance), variable expenses (e.g., utilities, car repairs) and discretionary expenses (e.g., eating out, movies). Once you've listed your expenses, create a revised budget that prioritizes your retirement goals and stick to it. After all, there's no time like the present to ratchet up your savings.
Max Out Tax-Advantaged Plans
Your employer-sponsored retirement plan is an ideal place to sock away newfound savings. You can benefit from pre-tax contributions and tax-deferred growth. The pre-tax contributions may lower your current tax burden and give you even more money to save.
Any growth within your plan is tax-deferred, allowing your funds to accumulate faster. Plus, many employers match a percentage of their employees' contributions, further building upon your savings efforts.
Contribution limits for employer-sponsored plans currently start at $12,000 and will incrementally rise to $15,000 in 2006.
Catch Up If You Can
Tax law changes now give plan sponsors an opportunity to help their employees age 50 and older save more toward retirement The "catch-up" contributions allow you to invest an additional $2,000 in 2003, and they will increase until 2006 when you can save up to $5,000 above standard contribution limits. If you're age 50 or older, find out whether your retirement plan accepts catch-up contributions
Reallocate Your Risk
Since you have less time to ride out wild market swings, you may want to consider being ambitious about saving while pulling back on investment risks, invest for stability by keeping your portfolio diversified among a variety of asset classes, company sizes and sectors. Be sure to consider any holdings in your company stock when looking at your asset allocation. Readjust your portfolio regularly to help reduce risk as you near your retirement day.
Rethink Retirement
Once you've run the numbers, you may find that retiring the day you turn 65 isn't practical. You still have the options of postponing your retirement date, taking a part-time job to supplement your retirement income or scaling back on your retirement dreams. It's never too late (or too early) to get your retirement strategies on track.
*Source. American Savings Education Council. The Area Agency on Aging
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