Kelly and Bob are in their early 50’s. Their youngest child graduated from college in May. They truly have an empty nest and realize the next big item they need to save for is retirement. While they were paying for private high school and college, they were not as diligent with saving for their own retirement. Now, they have to play catch-up.
It happens to the best of us.
Yes, we know we should have been saving for retirement over the years. But the reality is, life got in the way.
Yes, we know we missed significant growth but we’re here now. What can we do?
Some people shift what they were spending for college expenses to their retirement savings – but that amount may not be enough to pay for your retirement lifestyle.
Let’s assume during retirement you envision a lifestyle that will cost $100,000 per year. If you stop working at 65 years old, you will need over $1.5 million to support your retirement lifestyle for 20 years. To reach that amount in 15 years, you need to save around $6,700 per month*.
Here are 5 action steps to restart saving for retirement:
1- Reduce your spending to maximize saving for retirement. Consider spending less in food (dining out | groceries | coffee shops), personal care items (grooming | spa | clothing) and entertainment (vacation | concerts | movies).
2- Maximize your 401(k) contribution. For 2014, maximum 401(k) contribution is $17,500. If you are 50 years old or older, you have an additional $5,500 to contribute.
3- Maximize your IRA contribution. For 2014, maximum IRA contribution is $5,500. If you are 50 years old or older, you have an additional $1,000 to contribute.
4-, Maximize your Health Savings Account contribution IF you have a high-deductible medical insurance plan. For 2014, maximum contribution for an individual with self-only coverage is $3,300 and for an individual with family coverage is $6,550. If you are 55 years old or older, you have an additional $1,000 to contribute.
5- Commit to allocating any increases in income or any bonuses to your retirement savings.
Don’t be stressed by the total number you need to save. You can control that number by working longer and reducing spending. Focus on how much you need to save on a monthly basis to take the sting away from that larger number. Please consult with a Certified Financial Planner™ professional to understand the specifics of your situation and phase-out tax deductions.
* This example assumes a net rate of return of 3% which accounts for investment growth, fees and inflation. This example excludes Social Security benefits.
ABOUT THE AUTHOR:
Niv Persaud, CFP®, CDFA™, CRPC®, is the Founder of Transition Planning & Guidance, LLC. Her firm bridges the gap between financial planning and coaching. As a Transition Consultant, she offers sage advice in all aspects of life – financial, personal and professional. Niv does not manage money and does not sell financial products. She charges an hourly fee on a retained basis. Her services include spending plan development, divorce financial review, life strategy and professional progression. Niv actively gives back to her community through her volunteer efforts. She believes in living life to the fullest by cherishing friendships, enjoying the beauty of nature and laughing often — even at herself. Her favorite quote is by Erma Bombeck, “When I stand before God at the end of my life, I would hope that I would not have a single bit of talent left and could say ‘I used everything you gave me’.”