Planning for Retirement When You Didn't Start Right Away

What I imagine retirement to look like when I get there

When I was going to college, all my professors suggested I start some kind of retirement before I hit my 30s. I was smart, I did start a retirement account as soon as my then serving job hit full time hours on a permanent basis and when I got my first big-girl job you can bet your buttons I was putting away as much as I could while I was making $70k. But what if you're not me? What if your 50-60 years old and have no savings? You've come to the right place and even if you're 20-30 years old and have no idea where to start, you're still in the right place.

It used to be you had to get both benefits and retirement through your employer and maybe one day we could count on social security. Considering the current political climate, I'm not confident it's still going to be there when we're all ready to retire. This is why it is critical you set up your own safety net.

There are two main type of accounts you can start as an individual. They are a Roth IRA and a traditional IRA. The difference is the point at which the taxes are taken out. In a Roth IRA, taxes are accounted for when you make the investment into it. In a traditional IRA the taxes are accounted for when you take the distribution. So all-in-all do you want to pay your taxes up front, when they could potentially be smaller, or do you want to pay them later, and potentially pay more? There is no wrong or right answer and all I can say is taking the taxes out ahead of time (with the Roth IRA) sounds better to me, but to each their own.

The best advice I've heard when looking to start saving for retirement is "better late than never". Even if this is the first you're looking at retirement plans and haven't saved a penny, now is the best time to start. My recommendation to you is: reduce the amount of debt you have (pay off the credit cards and leave them in a drawer for a rainy day), maximize your income, and then put as much as you can without sacrificing necessities into savings. The more you put in now, the better off you'll be later.

Concerning where to put your money (as in what company), I can tell you most major financial institutions have retirement programs. Research what banks and savings options are out there. I have a financial advisor I thoroughly enjoy working with and I also have accounts elsewhere. Both are good options, but there's a lot to think about not matter what you choose. The best thing you can do is research.

The sooner you start saving, the better. However, the very next question is: How much do I save? The answer is 70-90% of your pre-retirement income to maintain standard of living. Here's how I would approach this:

1. Start by tracking expenses and maximizing savings while your working. Figure out how much income you need to be comfortable.

2. Downsize all debt. Get rid of your credit cards, pay off your car and your mortgage, etc.

3. Once your debt is paid factor in everything else: Groceries, Electricity, Water bill (unless you're on well), House insurance, car insurance, health insurance, monthly cost of gas, etc. Anything and everything you can think of.

4. Put away as much as you can every month.

Once you have a figure that you need to live on each month you can estimate how much time you want to continue working and how much you need to save each month to make retirement happen. The key is not over-extending yourself and your budget while trying to make up for lost time. Give yourself some grace to start from scratch and understand that not everyone starts saving for retirement at a young age. Sometimes we start when we're meant to.

Happy Budgeting!

Ellie/TBM