Retire With A Late Start-5 Important Decisions To Make Now
Ok, I know I haven't saved enough for retirement. How can I retire with a late start?
Years ago, I remembered my beautiful daughter looking at me in the eyes with a look that said she was going to ask me a life-changing question, only to hear,
“Mommy, was there electricity when you were born?
After letting her know that I was born after electricity was invented, the weight of being over 40 started to kick in. With that weight comes the reality that I am a lot closer to retirement age.
If you're trying to retire with a late start, you may look at your anemic retirement account and think that it’s impossible to retire. I am here to say that it’s possible to retire. The key to being able to retire with a late start is to reframe how you make seemingly unrelated decisions.
The following are 5 decisions that can make or break your ability to retire with a late start.
Take full advantage of your employer's retirement benefits
Pick an employer with great pay AND benefits
Keep your home costs low, so you can afford to retire
Prioritize your retirement over paying for your kid's college costs
Rethink traditional ideas about retirement
1. Take full advantage of your employer's retirement benefits
Estimate how much money you need to retire.
It may be discouraging to do a retirement estimate if you're trying to retire with a late start. The only way to know where your retirement stands are to face the music and do an annual retirement estimate.
A rule of thumb is that you need 10x your salary saved by 67 to retire. Don't panic, this number is only a starting point. For some, this number may be way too high. You may live way below your salary or live in a low-cost living area. For others, it may be too low.
For a more accurate estimate, I encourage you to use a retirement calculator, especially the one offered through your retirement plan provider. If you don't have one, go online to find a retirement calculator.
Contributing enough to get your company’s full match can help you retire with a late start.
It may not seem like much now but compounded over time, your company’s match can quickly add up to over $100K in extra savings to help you retire with a late start. Go on your HR’s website to make sure you’re contributing enough to get the full match, and if you aren’t, increase your contributions. If you are contributing pre-tax, you may not even see a big difference in your paycheck.
Use your employer’s auto-escalation to increase your contributions slowly.
If you aren't in a financial position to dramatically increase your contributions, use the auto-escalate feature to gradually increase your contributions by as little as 1% annually.
No auto escalate feature? Set an annual reminder in Google calendar to increase your contributions by 1%.
Consider setting the annual contribution increase for the month you get your raise. You use a portion of your raise to increase your contribution; the rest goes to your paycheck.
Review your investments to make sure they are working as hard as you.
You work too hard for your money to have it sitting around in a 401k plan doing nothing. Use tools like CNN Money’s Asset Analyzer to find your best investment mix.
If you are unsure where to start, consider a Target Date Fund. It’s a fund pre-mixed with different investments designed for a moderate investor retiring the year in the fund’s name. The funds will occasionally evaluate and re-adjust the fund investments.
2. Pick an employer with great pay AND benefits to help you retire with a late start
Your job choice significantly impacts your ability to retire, especially if you're trying to retire with a late start. Below are a few things to consider if you're thinking of changing jobs:
How much can you save overall?
As a financial coach, most of the working moms I spoke to were grossly underpaid. Look online at job search websites to research how much people are paid to hire someone with your experience. Websites like Payscale can also help you figure out if you’re employer is paying you enough.
How much you spend on healthcare
What’s the point of changing jobs for a $5K raise to spend an extra $416 a month on your health care insurance? Every dollar counts when trying to retire with a late start. The more companies are willing to pay for your benefits, the less you have to pay out-of-pocket, freeing up cash to help you save for retirement.
How much you'll have for retirement
If you're looking for a job, look for a job with great retirement benefits such as a generous match or the ever-elusive pension (nowadays, finding a job with a pension is like finding a unicorn). Getting all the help you can to help you save for retirement
If you are thinking of changing jobs, look beyond the salary. Look at the “total cost” of the job on your transportation, housing, and healthcare expenses. Also, make sure your employer pays you what you are worth. Check out our resources for living your purpose.
3. Keep your home costs down so you can afford to retire with a late start
A higher cost for a home means more money is spent on housing than going to retirement. Consider the following:
Home costs
Your home-buying decision can make or break your retirement goals. A rule of thumb is to buy a home with a mortgage that takes up no more than 25% of your take-home income. If you are over 40 and wish to retire before the second coming of Christ, you have to consider the impact your home mortgage will have on your ability to save and retire.
Remember, a home is much more than a mortgage: maintenance, appliance repairs, higher utility payments, HOA dues, etc. Consider how your total housing cost will impact your ability to save now for retirement and how the mortgage may impact your ability to stop working in the future.
If you have a 30-year mortgage and your goal is to stop working by 65, what is your game plan to pay your mortgage without an income?
You can either:
Choose a less expensive home with a mortgage you can pay while in retirement.
Stick to your current mortgage payments and adjust your retirement date until after you’ve paid off your mortgage.
Plan to pay off your mortgage by retirement.
Increase your 401k plan contributions to cover your expenses in retirement
If you're shopping for a home, choose a shorter mortgage and time the payoff date with your desired retirement date.
Bottom line: If you are looking for a home, think beyond the mortgage payment. Your overall housing costs should allow you to meet your other financial goals, like retirement.
Transportation Costs
A long commute may increase the amount you spend on vehicles, gas, auto insurance, and even healthcare. Several studies have shown long commutes can hurt your health.
I had a friend who switched to a job paying the same but with a much shorter commute (only 5 minutes to her office). Her one decision extended her vehicle’s life, lowered her insurance, lowered monthly gas expenses, allowed her to put more money towards retirement, and as a bonus, allowed her to pay down her debts quicker. Oh, and she immediately lost 12lbs!
Read this if you're thinking of relocating.
Bottom Line: If you are thinking of relocating, consider using a cost of living calculator to compare areas. Your relocation choice dramatically impacts your financial quality of life. If you are thinking of moving, a 30-minute move to a different county can save you thousands of dollars. My family moved 30 minutes away and got a larger home with the same quality of schools, and lower property taxes, for ½ the cost of where we were living. Ironically the change didn’t dramatically affect our commute.
4. Prioritize your retirement over paying for your kid's college costs
Loving your kids does not mean allowing them to go to a $50 K-a-year school to become a public school art teacher when you can't afford it. Most kids have no idea the financial burden a college choice can be on them or you. As a financial coach, I’ve seen parents go into $100K in debt for a degree their kid didn’t finish or use because it’s where their kid wanted to go. Worse yet, your kids as adults become sandwiched between taking care of you because you did not save enough for retirement, struggling to pay for their own kid’s college while paying off their student loan debts.
A friend of mine said it best, "What is more loving — to help your kids find a cost-effective way to get a college degree or for you and your spouse to spend 20+ years of your retirement sleeping on your kid’s couch because you did not save for retirement?"
Prioritizing your retirement is the kindest thing you can do for your children. As a bonus, by helping your kids choose a fiscally responsible school, you are also saving them from the financial burden student loans will have on their financial future.
5. Rethinking traditional ideas about retirement
I know some people may be reading this blog and thinking, “there is no way I can save enough to retire. If this is you, then I’m going to encourage you to throw out traditional definitions of retirement and to start to see retirement as an age where you can fully live the life you were created to live.
The closest thing to retirement mentioned in the bible is in Numbers 8:25-26, and even then, the retirees still worked. God re-purposed the Levites' talents to serve in a different capacity. You have decades of talent aging like fine wine, and people need to taste its richness.
Rethink retirement as a combination of saving enough to cover as much of your expenses as possible and an opportunity to transition into a passion that pays- such as working for a non-profit, your place of worship, or turning your side hustle into a business. Because you have some of your expenses supplemented by your retirement savings, you can choose jobs that feed your soul rather than strictly pay the bills. The options are limitless, and the world desperately needs your years of experience and wisdom.
Recap
Getting a late start on saving doesn’t mean that a comfortable retirement is out of reach. It just takes a little bit more commitment to make it happen.
Take full advantage of your employer's retirement benefits
Pick an employer with great pay AND benefits
Keep your home costs low, so you can afford to retire
Prioritize your retirement over paying for your kid's college costs
Rethink traditional ideas about retirement
Taking these steps will go a long way toward helping make it happen, whether you’ve been saving for 20 years or just 20 months.
Next Step
Go online to your employer's retirement plan website and use their calculator to estimate how on track you are to retire by your desired date.
