You ever notice the runners crossing the finish line after a marathon? Hands on their hips, red-faced and gasping for air. Or, hunched over with their hands on their knees, kind of wobbling a bit.
That’s how a lot of 50+ workers are feeling these days when it comes to the race to retirement. Except, you haven’t crossed the finish line – you can see it, but aren’t quite sure you’ll make it, right? It’s OK. Take a few deep breaths and pace yourself. If you’re a bit behind in your retirement savings and feel like you’re getting lapped, we’re going to show you some shortcuts to get you back on track.
Transition to your retirement budget now
Consider transitioning your living expenses to retirement mode now. You know you’ll have to live on less when you quit working so it’s a good idea to start now while you can still choose your budget battles.
Think you might want to live on the lake in retirement? Consider downsizing the big family house that you’ve been rattling around in and find that lakeside cabin fixer-upper. If the commute is still manageable for your current job, you could sell your big house, buy the retirement hideaway and invest the remaining equity from the sale.
Reducing debt is a good idea, too. That 18% APR credit card interest you’re paying is dragging down your financial resources. Dedicate yourself to paying off the credit cards, and then put them in a drawer and let them gather dust for a while. Don’t close the accounts, because that could ding your credit score. Once those balances are erased, you can plow that extra cash into your retirement savings.
Still driving two vehicles? Maybe you can get by with just one. Sell the extra vehicle and all the money you’ll save on payments, insurance, gas and maintenance can go to your nest egg. Premium cable television, the landline you never use, membership dues you pay for services long forgotten: every bit adds up.
If you want to get serious about saving for retirement and living a worry-free life-after-work, reduce your living expenses by half. Yes, half.
Kick-in the catch-up contributions
If you’re 50 or over you can make up for a bit of lost time with catch-up contributions to your tax-deferred retirement accounts.
That means you can put in your regular maximum deferral contribution of $17,500 (in 2013 and 2014) to your 401(k), and then kick-in an additional $5,500. Traditional and Roth IRA catch-up contributions are limited to $1000 through 2014 while other retirement plans like SIMPLEs, SEPs and 403(b) plans have their own catch-up restrictions. The IRS has all of the details available online — or talk it over with a trusted advisor.
Start a new investment account
If you’ve really committed to a super-charged retirement savings plan, you’ll find that you can quickly reach the limit of what can be set aside in your tax-deferred accounts, such as your 401(k) or IRA. Now you need to dedicate funds to a taxable investment account. If you haven’t already started an emergency savings account, this new brokerage account can serve double duty for a while.
That means you’ll first stash cash, or cash-equivalent investments, into the account amounting to six months income. Once that life-raft is inflated you can invest the rest in a suitable mixture of equity and fixed-income investments.
Now, set-up an automatic draft from your current wages to feed this shiny new account. Have each month’s deposit dedicated to buy-in equally into your mix of investments.
Generate a side income
Finally, you may want to investigate starting a small business or income-producing endeavor on the side. Moonlighting can be fun, and it might be something you’ll grow now to continue during retirement, as an income supplement to your retirement assets.
Follow your passions. Love arts and crafts? Start an Etsy account and sell your wares online. Or combine your hobby with a bit of travel and sell your goods at local arts fairs and trade shows. Online sales can be extremely lucrative, especially if dedicated to niche products. Rather than compete with Wal-Mart (WMT) and Best Buy (BBY), consider selling products of local and regional interest, or items related to a favorite past time that you are totally enamored with.
Virtually any hobby can be monetized: photography, writing, sewing – even fishing! Plow any profits you generate into your investment and retirement accounts.
Moonlighting can also mean finding a second job. Again, finding something that you may want to continue doing during retirement is best.
Committing to your retirement lifestyle – prior to retirement – can help you define what you want the rest, and the best, of your life to be.
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Written by Hal M. Bundrick