Daily Gains Letter

It’s Never Too Late to Save for Retirement: Four Easy Retirement Steps for Late Planners

By for Daily Gains Letter |

050313_DL_whitefootWhether you’re on the precipice of retirement or still a few years away, it’s never too late to start saving. That said, the longer you wait, the harder it’ll be to meet your retirement goals.

What’s the best way to increase retirement wealth? While many may think the key is picking the best investments, the truth of the matter is that the best place to start is by simply saving. Regardless of where you’re at, if you start saving now and stay diligent, you can significantly improve your retirement prospects.

Savings that can have a positive impact on your retirement plans can only come from choices that affect your day-to-day life. And by saving, I don’t mean giving up your daily coffee; I mean changing your lifestyle—saving 10% of your gross income right off the top, or more if possible.

Granted, there isn’t one single path to fulfilling your retirement planning goals. However, there are certain steps everyone can take to help prepare financially for retirement.

A Little Goes a Long Way

How much of your salary should you put aside? There is no definite equation, but some experts recommend 10%–15% of your annual income, or more if you’re closer to retirement and haven’t started saving.

By living off of 70% of your salary or working a few more years, you can cut the savings levels you must reach by 10%–25%, or by even more if you save and work past the average retirement age.

How can you set aside that much from each paycheck? Again, it comes down to lifestyle choices. Cut back on everyday expenses where possible: the number of times you eat out, go to the movies, et cetera.

Thanks to compounding, every little bit helps. If you started saving just $50.00 a week, over a 20-year period you would accumulate $79,615 ($27,615 in interest), assuming a daily compound interest rate of four percent. If you save $50.00 a week for 10 years, you would generate $31,953 ($5,953 in interest).

Take Free Money

If your employer has a 401(k) match, take advantage of it. A common matching 401(k) formula is a 50% match of up to six percent of your contributions. For example, if you contribute $6.00 of every $100.00 you make, your company will contribute $3.00 to your retirement plan.

How much free money should you take? While there are limits, at this stage in life, it’s best if you can invest the maximum. In 2013, if you are under 50 years old, you can contribute a maximum of $17,500. If you’re 50 or older, you can make an additional catch-up payment of as much as $5,500, for a maximum of $23,000.

The maximum contribution limits change annually to track inflation. Since inflation gradually reduces the value of a dollar, you need to contribute more to have the same purchasing power.

It Pays to Wait

Just because you can do something, doesn’t mean you should. While you can start drawing early retirement benefits from Social Security at 62, it pays to wait longer, especially if you decide to work past that age.

Wait until you turn 70 to start Social Security, and you can boost the monthly payout by as much as 80%.

Invest in High-Growth Dividend Paying Stocks

Even if you’re already retired, you could still have several decades for your retirement savings to grow. Where should you invest your retirement funds?

These days, it’s not uncommon to find bank and utility stocks that provide annual dividends at higher rates than bond interest. If you have a higher tolerance for risk and are considering investing in stocks, make sure you look at those companies that have a long history of paying dependable dividends that increase to keep pace with inflation.

What if you don’t have a lot of money to invest in stocks? Remember, it’s all about compounding. By investing even a little, your portfolio has time to compound. Initial investments may be small, but thanks to compounding, the payoff will be greater than if you hadn’t invested at all.

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