Life goes by fast. When you’re nearing the end of your career, it can seem as if you just started. Especially if you’re behind on saving for retirement.
When your net worth is staring you in the face and you’re contemplating retirement, that piece of paper can be pretty depressing if it doesn’t measure up. Years have flown by and you’ve had a good time, but now the truth of your neglect is coming due.
Early Career Investing Playbook
Ideally, you should have been planning for retirement soon after you started your career. Early in your career, you should have:
Matched your employer’s 401(k) contribution at the minimum and maxed out your annual contribution if possible.
Maxed out annual contributions to a Roth IRA for as long as your income allowed you to do so.
Invested in the stock market with a 100% equity portfolio, including a large helping of small cap stocks to drive additional growth. Sure, the value of the portfolio would have had a wild ride, but the overall journey would have been up… way up. That’s the advantage of being a young investor – the ups and downs don’t matter that much because you have the luxury of time on your side.
Rather than pay rent, if you have the resources, it is usually better to start building equity by buying a house or condo.
If you did these things and had a reasonable career, you would probably be in great shape by the time you started thinking about retirement.
Getting Back on Track
If you didn’t, if you’re behind the curve, what should you do? Take a deep breath and take these four steps to get back on track:
Do a financial plan. Find out where you are and what you need to do to get where you want.
Keep working as long as you can. Each year you work can make a huge difference in your retirement savings because you’re adding to savings rather than detracting.
Review all expenses. Live more simply and cut what you can. Reducing expenses is usually the most effective way to get your retirement savings back on track.
When you have the opportunity to take social security, be strategic – don’t just grab the money at age 62. If you can wait until age 70, your annual payments increase at 8% per year. That’s a nice payback, as long as you’re in good enough health to live past your early 80's to make the trade-off worthwhile.
The best time to start planning for retirement is now, whenever that might be. At any age there are things you can do to make your plans for retirement work. Keep in mind, with lifespans on the rise, your retirement may last as long as your career. So, start now, get yourself on track and enjoy the ride.