This article is for people who know they should have saved more when they were younger...but they didn't. The good news is that it's not too late to take action to secure your future. If you are feeling that you are behind in preparing for retirement, don't despair. You can still take action to make up for lost time.
Remember that your investment time horizon is the rest of your life...not your retirement date. This means that, if you are 45 years old today and live to age 90, you have 45 years to grow your money through the magic of compound interest. Another good piece of news is that the 2001 tax law changes provide increased opportunities for late savers to save for retirement. If you are 50 and older, you can contribute additional catch-up amounts to both an Individual Retirement Account (IRA) and an employer tax-deferred savings plan (e.g., 401(k) or 403(b) plan).
These tax law changes are extremely important to late savers and may not last beyond 2010 if a "sunset" provision in the tax law takes effect. Therefore, as they say in farming, it's time to "make hay while the sun shines." So, if you're beating yourself up about what you haven't done to prepare for retirement, it's time to stop and, instead, take action to create a bright future. Today is the first day of the rest of your financial life.
Compound interest is not retroactive. In other words, it is impossible to earn interest that was never saved years before. That's the bad news. The good news is that there are over a dozen different ways for late savers to make up for lost time. All of these methods basically fall into one of two basic strategies:
· Take action before retirement to increase retirement savings
· Take action after retirement to decrease the amount of savings required
Like many decisions in life, catch-up retirement planning requires trade-offs. For example, spending less now in order to save more in a tax-deferred plan or delaying retirement in order to earn additional retirement benefits and/or save more money. The popular phrase "there ain't no such thing as a free lunch" is an appropriate description of the planning process because all decisions have their costs.
Various retirement catch-up strategies can also be combined. Three examples are: investing more in a 401(k) and moving to a less expensive location; moonlighting for additional income and delaying retirement; and investing more aggressively and "downsizing" to a smaller home.
The bottom line is that it's not too late to get started. Catch-up savers who are just beginning to plan for the future still have many options. Rutgers Cooperative Extension recently partnered with Utah State University and The National Endowment For Financial Education (NEFE) to produced the Guidebook to Help Late Savers Prepare For Retirement. Over a dozen catch-up strategies are explained in this publication, along with tax law savings incentives and available resources.
This 50-page publication can be downloaded from the Internet at the www.nefe.org/latesavers/index.html. Print copies are also available from the Rutgers Cooperative Extension of Sussex County office. To obtain a copy, send a check for $10, payable to "Home Economics Programs and Bulletins," to Rutgers Cooperative Extension, 129 Morris Turnpike, Newton, NJ 07860.