The adage “better late than never” applies to retirement saving. It’s unfortunate that so many baby boomers neglected saving for retirement. Some are in this category because conspicuous consumption trumped saving. Others relied heavily on the real estate or stock market bubbles and lost. Still others failed to diversify, such as by putting every spare dollar into their own business venture that ultimately went nowhere. What happens now?
What would I do if I were staring retirement in the face with little or no retirement savings? Let’s go through the list.
1. Cut spending to the bone. If you don’t downsize your lifestyle and shed yourself of discretionary spending obligations now, reality will do it for you – more forcefully – when you retire.
2. Put every dollar of reduced spending into a retirement plan,. The first goal is to obtain the full matching benefits provided by an employer.
3. Relocate for a lower cost of living. Yes, this is a tough decision to make. Wouldn’t you rather free up some cash to save for retirement? State and local taxes, high utilities – all of it adds up in a hurry.
4. Get the kids off the payroll. If you are supporting adult children – even college age children – while possessing inadequate retirement savings, you are making a huge mistake. Your children have time to recover from your lost support. You don’t have the luxury of time.
5. Dump the car payments. If you have car payments that will extend into the future, consider selling and downscaling your ride, also to free up cash for saving.
6. Downsize the house. If you have equity and a mortgage, this presents several helpful options. Selling frees up the equity to invest or to pay cash for a smaller home. Getting rid of the mortgage frees up cash to save. There is no need or benefit in delaying a downsizing move until retirement when you are a late starter on retirement saving.
If you believe that none of these actions will provide a meaningful benefit, take a look at the graphs in this article. These show how only ten years of serious saving can build up a retirement nest egg in the $300k – $400k range. If you had $300,000 at age 65 that you don’t have now, and bought an annuity, that could put almost $2000 of extra income in your pocket – every month for life.
I think $2000/month should be motivating for a late starter – don’t you?