5 Ways to Prepare for Retirement Late In the Game

An article is circling the web and the mainstream media this week, reporting that one in three Americans have no money saved for retirement. The findings support a claim that I have made many times on this blog, that the average person is not in a position to enjoy anything that looks like full-time, permanent retirement.

Does that mean that millions of people are doomed but a retirement comes around? They don’t have to be, but it will require taking some extraordinary steps between now and the day they hope to retire.

Under-preparation for retirement is a big problem the whole world ‘round, and it’s not always the fault of the individual. People spend years slogging away through a challenging career, having families, having fun, traveling, etc. They wake up one day, they’re 55, and they realize they have next to nothing in their retirement account. This is a tough spot to be in. Even though this isn’t the end of the world and there are still strategies that can be implemented, you won’t have the benefit of the time value of money if you are getting close to retirement and have little to nothing saved and invested.

5 Ways to Prepare for Retirement Late In the Game
5 Ways to Prepare for Retirement Late In the Game

But in another way, time is your best friend when it comes to investments of nearly any type. Because it’s nearly impossible to get rich quick, investments that grow well, grow slowly. If you happened to start early, and make regular contributions all the way, you will be all set for a comfortable retirement. But if you, like most people, did not, you’ve got to make some other plans, and take the kind of drastic action necessary to pull off the retirement you hope to have.

Here are a five ways you can make that happen.

1. Save Whatever You Can in an Employer-sponsored Retirement Plan

If you have little or no money saved for retirement, there may be a tendency to throw up your hands and say why even bother trying? But try you should, no matter how late in the game it might be.

Get into a 401(K) at work if one is available, and undergo a pension review to see what your best options are. Sometimes it’s very helpful to get a professional’s thoughts on your 401(k) structure. Because these funds grow with markets, and are the result of routine contributions, often with matched funds from employers, it’s imperative that you have a good plan set in stone well in advance of your actual retirement – the sooner the better. If you’re starting late in the game you can’t afford to make mistakes.

Here’s the point – let’s say that you’re 50-something, and you don’t have time to amass a million-dollar retirement portfolio – you may still have time to build a $100,000+ sized portfolio. And that will be a lot better than having nothing at all.

2. Set Up Personal Retirement Investments

If you aren’t covered by an employer-sponsored retirement plan, definitely look into an IRA and take advantage of it. IRA’s don’t have the high contribution amounts that 401(k) plans do, but you can still save as much as $5,500 ($6,500 if you’re age 50 or older) each year between now and the time you turn 70 1/2. And if you are not covered by an employer plan, your IRA contributions should be tax-deductible.

You can also look into a Roth IRA, which has the same contribution limits as a traditional IRA. The short-term disadvantage is that Roth IRA contributions are not tax-deductible. However, the investment earnings within it accumulate on tax-deferred basis. And since you did not get a tax deduction on the contributions, if you make withdrawals after turning 59 1/2, and you’ve been in the plan for at least five years, you can withdraw both your contributions and the investment earnings on them, on a tax-free basis.

A Roth IRA will also provide you with a form of tax diversification in retirement. It means that at least some of the income that you take in retirement will not be subject to income tax.

3. Save Money in Non-retirement Investment Vehicles

Though it’s always better to have either a tax deferral or a tax-free angle to your retirement savings, there’s nothing in holy writ that says that you can’t save money for retirement in non-tax-sheltered investment vehicles.

That includes investing your money in stocks, mutual funds, exchange traded funds, real estate investment trusts (REITs), or investment brokerage accounts that hold some or all of these investments.

True, there’s no tax-advantage to saving money in this way, but it is a form of asset accumulation, and that will help when you retire.

But there’s another side of this that will provide an unexpected benefit. Since non-tax-sheltered investments get no tax benefit during the accumulation phase, there is no tax liability when you withdraw money. Similar to a Roth IRA, that will mean that you will have an income source that is not also create a tax liability.

4. Own Your Home – And Pay Off the Mortgage!

This isn’t the best strategy for every single person, but it’s a great move for some. For one, houses tend to appreciate in value over time. And of course there are a number of tax benefits that come with owning a home, mainly tax-deductibility of mortgage interest and real estate taxes.

But you should never take the prospect of rising property values for granted. The financial meltdown of 2007-2009 depressed property values in most of the country, and quite deeply in certain markets. For this reason, you should make it a point to pay off your mortgage as soon as possible.

That will accomplish three things:

  1. The elimination of the monthly house payment will make more money available for investing
  2. Owning a mortgage-free home will lower your basic cost of living in retirement
  3. A 100% equity position in your home will give you plenty of options to downsize – that is, to sell your house and move to a less expensive living arrangement

All three benefits will be especially important if you are preparing for retirement late in the game and won’t have a large amount of retirement savings.

5. Get Out of Debt

This strategy is similar to paying off your mortgage, but you apply it to your entire debt situation. By getting out of debt, you reduce the amount of income that you will need in retirement.

Lowering your basic cost of living is one of the very best strategies for preparing for retirement when you are late in the game. In addition to the fact that you will need less money to live on, you also gain a greater sense of control over your finances and your life.

Those are just five ways to prepare for retirement late in the game. We haven’t even gone into retirement income strategies, but I have covered those in the past and will continue with more in the future.

Are you one of the many millions of Americans who are preparing for retirement late in the game? If so, what are you doing to prepare for your retirement years?

( Photo by Markus Grossalber )

10 Responses to 5 Ways to Prepare for Retirement Late In the Game

  1. as a tax professional I see a lot of folks with no retirement plan at all. Your article has some great suggestions and it’s never to late to get started. Your tips I mention to as many tax clients as I can because they are my tips too.

  2. Hi Mike – When you see that the median household income is around $53,000 per year, and you consider the cost of housing, utilities, health insurance, etc, it’s not surprising that so many people don’t have retirement plans. But all the more reason why they need to get something going, even if it won’t provide for a full-time retirement. The focus may need to be on partially replacing reduced income from retirement. I think this group is an under-served market.

  3. I saw an earlier post that basically disparaged someone way behind in working on retirement plans, investing, etc. as in “who can be that stupid?” Well I must be stupid as I was well on track. Cash in the bank, huge amounts of real estate. Then life got in the way. The real estate market crashed), got a divorce, then banks came calling for all of it & left with huge debts. THIS IS BUT ONE REASON. There are so many more. At 53, and as a female, facing retirement age soon, this are steps Ive taken since my entire life fell apart. I own my home outright, I pay credit cards off in full monthly, an Ira with $55,000.00 and preparing to open & contribute to a solo 401k with $ earned as independent contractor, work as an employee with no benefits for another company, and working towards finding more clients as an independent contractor. I make around$4000.00 a month. I have nowhere near what I need to retire in 10 years. My financial advisor believes it will be around $100,000 upon 68-70 years old. my only debt is my vehicle. Sao what else can this stupid ignorant woman do to fast track more savings. Should I sell my house in this rising market? I have equity of approx 20,000 & I’ve only had it for 2 years. Sell jewelry? Or is my future going to be ….”welcome to Walmart” I apologize for the sarcasm, but nobody knows anybody’s life circumstance. It was offensive and smacked of superiority. Most people concerned about retirement have experienced financial setbacks or just plain annilation of wealth due to recessions, bear markets, & investment accounts that are hemorrhaging massive losses. China caused so much volitilaty, and it’s election year. Terrible things for investment accounts. At least I have $55,000 sitting there in a very slow earning, yet safe(r) companies. 30 years younger & I would buy buy buy because good prospects are low. I just can’t risk that now. Longer story long, what else should I be doing to inflate my retirement?

  4. Hi Penne – I actually think you’re doing everything right! You’re being way too hard on yourself. You were dealt a setback due mostly to the economy. If you made a mistake it probably was having too much faith or confidence in the real estate market, if I read your comment right.

    You’ve been through a lot with the divorce and the crash, and from what I’ve seen you have a lot of company in that area, it’s just that most people keep their wipe-outs to themselves and all we hear are the cheerleaders.

    So rather than focusing on what you’ve done wrong, think about what you’re doing right, and stay on the course. You’re 53, and you’re only debt is your car – well done. You own your house free and clear – well done. You have a job and an independent contractor business – well done. You have $55k in an IRA and you’re looking into a solo 401k – again, well done. You’ve been to hell and back and you still have certain advantages working in your favor. It seems to me that you can handle whatever life throws at you.

    So here’s the only advice I’d offer:

    1. Keep building up your business, I suspect it’s the key to your future
    2. When you start your solo 401k, put all of your contractor income into it so it will grow more quickly
    3. Don’t get crazy with your investments, since you don’t have a long time horizon any more; stay diversified, and fairly conservative and don’t trust the markets – Don’t let anyone convince you to speculate with your money.
    4. Plan to use your contactor income as an additional income as you move toward your retirement years, and just scale it back as needed or as circumtances allow
    5. Don’t mourn what you’ve lost – life is too short; instead embrace your obvious strengths and your resiliance and celebrate your life. You were born into the world with no security, and you’ve survived all these years – you’ll survive now too.
    6. Tune out the mainstream retirement advice that will have you believing you’re a failure because you don’t have a golden retirement. Life is more than money! (!!!)

    I hope that helps…

  5. Kevin, great article. I’ve written quite a bit about the problem, and share the concern. I wish there were a way the financial blogging community could better reach the folks who most need the help. Maybe your article will be a start. I’m open to any ideas of how we could work as a community to better communicate the urgency. Any ideas?

  6. Hi Fritz – Not to sound cynical, but I don’t think that the pf blogging community has much interest in addressing those people who aren’t well prepared for retirement, or don’t have decades to prepare. Bloggers are trying to make money with their sites, and you don’t make money selling affiliate programs to people who don’t have much money. Also, I think people over 50 are more cynical about claims of investment riches.

  7. Kevin, I don’t view your comment as cynical, but an unfortunate reflection of reality. There’s a reason I, for one, have chosen not to monetize my blog. I want my motives to be pure, and my primary motive is helping folks realize the importance of managing their finances, and taking responsibility for their actions. Perhaps I’m naive, but it’s the path I’ve chosen to follow….Keep up the great work!

  8. My site IS monetized Fritz, but I still think it’s important to speak the truth, even when it flies in the face of “conventional wisdom”. Yes, blogging is how I make my living (100% these days) but I still try to take seriously the “voice” that I have as a blogger.

  9. Or, do as I did and go into business doing what you’ve always wanted to do! My “second act” is a booming custom portrait painting business.

    I can’t imagine “retiring”, it sounds so boring.

  10. Hi Robin – That is an excellent option as well, and one that I’ve advocated in other articles. Some people claim that it isn’t true retirement, but as you point out, if it’s something you really like to do you don’t need to retire.

    Over the years I’ve noticed that people who are self-employed generally don’t retire and while they may save money for eventual retirement, they seldom actually do it. I guess it’s somewhat pointless to retire from yourself! And for what it’s worth, being self-employed myself I don’t plan to retire, at least not fully. I actually like what I do, and it really is different when you work for yourself.

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