Retirement Planning Strategies for Late Starters

When most people think of retirement planning, they think of saving money. However, there’s much more to retirement planning than just putting money away. Retirement planning is the process of figuring out how you’re going to live your life once you stop working. This includes figuring out how much money you’ll need to have saved up, what kind of activities you’ll be able to pursue, where you’ll live, what resources are available for your use, and more. The reality is that most people don’t think about retirement until it’s too late. But even if you’re starting your retirement planning late, it’s not too late to get on track. In fact, retirement planning is something that should be done throughout your life, regardless of when you actually retire.

The Basics of Retirement Planning for Late Starters

If you’re starting your retirement planning late, there are a few basic steps that you need to take:

Hire a Financial Advisor

If you’re feeling overwhelmed by the task of retirement planning, it’s a good idea to hire a financial advisor. A financial advisor can help you create a plan that is specific to your needs and goals.

Seek Out Other Resources

Whether you hire a financial advisor, it’s also important to seek out other resources that can help you with your retirement planning goals. This can include friends and family members who have already retired, books about retirement planning, blogs, videos , classes, seminars, etc.

Figure Out How Much Money You’ll Need to Live on Each Month

This includes both your essential expenses and your discretionary expenses. Your essential expenses are the things that you need to live – like food, shelter, clothing, transportation, and medical care. Your discretionary expenses are the things that you want to have – like entertainment, travel, hobbies, education , new technologies, etc. You need to ask yourself how much money you’ll actually need to support the lifestyle that you want once you’re no longer working. To do this, take a look at your current monthly expenses and multiply them by the number of years you expect to live in retirement. This will give you a good estimate of how much money you’ll need each month. The formula looks like this: Calculate_Retirement_Monthly_Expenses

Figure Out How Much Money You Have Saved Up

This includes both your current savings and any investments or retirement accounts that you may have. Calculate how much money you’ll need to have saved up in order to cover your monthly expenses. This number may be higher or lower than the amount you need to cover your monthly expenses, depending on your investment returns and when you start saving. The formula looks like this: Calculate_Savings_for_Retirement

Create a Retirement Budget

Now that you know how much money you’ll need each month and how much money you have saved up, it’s time to create a budget. Your retirement budget should include both your essential and discretionary expenses.

Invest Your Savings

Once you have a budget, it’s time to start investing your retirement savings so that they can grow. There are a number of ways to invest money – you just need to find the right ones for your goals and risk tolerance.

Maximize Retirement Account Contributions

Contributing the maximum amount possible to your retirement accounts each year is a great way to ensure that you have enough saved up when you retire. Not only can you receive tax breaks for contributing to retirement accounts, but your money will also grow tax-deferred. 

Consider Annuities

Purchasing an annuity is another way to guarantee a regular stream of income during retirement. An annuity is a contract between you and an insurance company in which you agree to make regular payments in exchange for a guaranteed income stream for the rest of your life.

Know Your Limits

The IRS has different guidelines for when you are required to start taking money out of your retirement accounts. You can either use their guidelines or choose to withdraw the money earlier, if you’d like. For tax year 2021, the most you can contribute to a 401k or 403(b) account is $19,500. The most you can contribute to an IRA account is $6,000. There are also income limits for contributing to retirement accounts. If you make more than $137,000 as a single taxpayer or more than $203,000 as a married couple filing jointly, you are not allowed to contribute the maximum amount to a 401k or 403(b) account.

Take Advantage of Catch-up Contributions

If you’re 50 or older, you can take advantage of catch-up contributions to your retirement accounts. This allows you to contribute an extra $6,000 per year to your 401(k) and an extra $1,000 per year to your IRA.

Be Smart About Taking Social Security Benefits

You will need to start taking Social Security benefits once you retire. Even though this is a reliable source of income, it’s smart to look into ways to maximize your benefits. If you have an IRA account, for example, ask if the funds in the IRA qualify as countable income when calculating your monthly Social Security benefits. This would offset some or all of your Social Security benefits, resulting in a higher monthly income.

Stay Healthy

One of the biggest expenses in retirement is health care. By staying healthy and taking care of yourself, you can reduce the amount of money you’ll need to spend on medical care during your retirement years.

The Bottom Line

Now that you know the basics of retirement planning, it’s time to get started on your own plan. The sooner you start saving and investing, the more money you’ll have when it’s time to retire. Don’t forget to take into account your age, income level, and risk tolerance when creating your plan – each of these factors will play a role in how you save and invest your money.

Retirement planning is the process of figuring out how much money you will need to have saved up in order to live comfortably during your retirement years.
The sooner you start planning for retirement, the better. However, it's never too late to get started – even if you're in your 50s or 60s, there are still plenty of ways to save for retirement.
Common ways to save for retirement include maximizing your contributions to tax-advantaged accounts, purchasing an annuity, taking advantage of catch-up contributions, and delaying Social Security benefits.
The amount of money you'll need for retirement depends on a variety of factors, including your age, income level, and lifestyle choices. However, most experts recommend saving at least 8-10 times your current annual salary.
Annuities are good for retirement planning because they guarantee income the rest of your life. You make one lump-sum investment, and then you receive periodic payments until the day you pass away.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.