If your financial planner tells you that it’s completely normal to start planning for retirement just months before you’re scheduled to leave the workforce, there is a high chance that they are being dishonest to you. The truth is that starting a savings fund this close your planned retirement isn’t just unrealistic, but borderline impossible.
Too Late for Saving
People who are in their 50’s or 60’s don’t have that much money to catch up on their retirement fund, and if they haven’t saved anything for their golden year so far, chances are that they’ll need to work even past their expected retirement date or lower their quality of life.
These are the cold, hard facts about not jumping on the savings bandwagon earlier on in your life – and you don’t want to learn these when you’re just months away from retirement.
Pittsburgh-based Fort Pitt Capital Group’s Serior VP, Chuck Mattiucci, says that people who come to him just months before they are set to retire are already too late, and there’s nothing that can be done to rectify the situation. There’s not much that Chuck can say to help their future retirees except the fact they should have come a lot more earlier.
By the time workers turn 50, they should already have years, if not decades, of financial planning experience. Your retirement fund should start to mature by that age, and you should start ramping up your monthly contributions to grow your nest egg as much as possible before the planned retirement.
Here’s how far you need to be in your retirement planning by the time you reach the age of 50:
Increase Monthly Contributions
Financial planners generally advise clients to start saving in their 20s to reap the benefits of compound interest. Wells Fargo Advisors’ Dan Prebish says that by the time people turn 50, they should have already maximized their monthly contributions to save up as much as possible for retirement.
Getting in the habit of budgeting can really help future retirees identify areas that can use a little less spending. This will allow you to free up more cash to add to your retirement fund. It’s always a good practice to contribute a little more every year so that by the time you reach the age of 50, you’ve already maximized your contribution limit.
When saving for retirement, make sure that you take advantage of all three tax buckets including tax-free, tax-deferred and taxed. Mims says that employer plans are basically free money which is why there is no reason for workers to not contribute enough to get a full match.
Have an Emergency Fund
Saving just for retirement is not enough, you also need to be prepared for any financial disaster that may come your way before (or after) your planned retirement age. Having an emergency fund is the best way to ensure that you’re prepared for any unforeseen circumstances. According to 2018 report by the Federal Reserve, 4 in 10 people didn’t have enough or any money in their emergency fund to cover an unexpected expense of $400.
Consult a Professional
It doesn’t make sense to wait until the final few months before retirement to consult with a financial advisor. Do it at a much earlier stage in your career so that you have a better idea about how much you need to save in order to sustain your expected retirement lifestyle.
Make sure that your planner is looking at your portfolio at least on a annual basis and making necessary changes to ensure that you meet your goals.
Eliminate Debt
Saving for retirement is much easier when you don’t have any debt to pay off. By the time you reach the age of 50, you should have paid down all your balances so that you have more money to direct towards the retirement fund. Matt Sadowsky from TD Ameritrade advises his above-50 clients to make their debt payments the utmost priorities so that they enter retirement without have to stress about their finances.
