You are about to turn 40 and you realize you don’t have much in your retirement account. Life happens. You had other priorities that needed every dime of your income. Now you need to start getting really serious about saving for your retirement or you will not have enough money to last. Luckily there are ways to make the best of a late start.
Catching Up to the Standard
At 40 years old you are allowed to save up to $17,000 per year in a 401k. If you consider the current predictions of a 7% average annualized rate of return, your return will take 24 years and 2 months to grow to one million dollars. That means you can retire at 64, but you have to set aside $17,000 per year or around $1,400 per month. However the calculations don’t stop there: You have to account for inflation. This means you need to work for an extra 7 years of contributing $17,000 per year. Since it is not uncommon for someone to work until 68 or 70, making it to 71 isn’t completely out of the question for some people.
Yes, You Need a Million
You may be thinking that a million dollars is a lot to hope for in your retirement. You may think that you don’t need that much because you just want a modest life. The experts tend to disagree with you though. The rule of thumb is you should withdraw no more than 3-4% of your total retirement portfolio each year for your expenses. Three percent of one million dollars is only $30,000, which doesn’t go very far if you have health complications, or want to travel any.
Insurance is Your Friend
Many people burn through their retirement fund due to a late-in-life chronic illness or age related medical expenses. Starting now with a disability insurance or term life insurance policy that has critical illness or quality-of-life rider may be the answer you need later. These policies can help pay for your disability or illness related expenses, which will help your post retirement pocket book.
Pay Early to Save Later
If possible, start being aggressive with paying off your debt so that you have fewer bills when you retire. Things like a mortgage, credit card balances, or car payments can really eat away at your monthly retirement income.
Many Alternatives
There are many options out there for people that want to invest in alternative methods to fund or supplement their retirement income. Some of the more common ways are with Roth IRAs, rental property investments, and stock dividends. Ultimately only you and your financial planner can analyze your situation and take steps toward your future.
If your group needs more education on late start or standard retirement planning for retirement or other benefits, contact us to speak with a benefit consultant.