“If only I knew then what I know now” is a common refrain and applies to many areas of life but may be most painful when it comes to investing. Compounding interest is a beautiful thing, but it takes years, decades, to do its thing and the later you start investing, the harder it is to make up for the lost time.
But it’s never too late to start planting trees. If your investment portfolio needs to play catch up, these are the steps you can take.
You’re Not Alone
If you don’t have any retirement savings, you’re far from alone.
“Americans as a whole aren’t saving nearly enough for retirement. In fact, an alarming number of people have absolutely nothing put away for their golden years. That’s according to new data from Northwestern Mutual’s 2019 Planning & Progress Study, which found that 15% of Americans have no retirement savings at all.”
If you’re in that 15%, keep reading.
Concentrate on Retirement Accounts
Compounding interest is a powerful tool for putting money into your pocket and taxes are a powerful tool for removing it. The most important thing you can do to bulk up your portfolio is to prioritize tax-advantaged retirement accounts which include 401ks, 403bs, Traditional, Roth, and Self-Directed IRAs, and HSAs.
Get the Match
If you’re lucky enough to have an employer-sponsored 401k that offers to match, make sure you’re contributing enough to qualify. Even if the 401k choices you’re offered aren’t great, that match is free money so contribute just enough to get the matching funds.
Know the Limits
There is a limit to how much you can contribute to retirement accounts and sometimes the limits are raised. For six years the IRA limit was $5,500 per year but that was raised to $6,000 for 2019. The limit for 401ks and similar retirement plans is $19,000 for 2019.
Play Catch Up
For those aged 50 and older, there is something called a catch-up contribution. This allows you to make additional contributions to your retirement accounts above the limits listed above. In 2019 the catch-up amount for IRAs is $1,000 for a total limit of $7,000. For a 401k and similar accounts, the limit is $6,000 for a total of $26,000.
Mind the Fees
Fees can eat up a huge chunk of your returns and retirement savings. People will flip at the idea of paying a $3 ATM fee but have no idea what fees are hidden in their investments. And for good reason, that kind of information is buried somewhere in pages of fine print.
Rather than straining your eyesight and your patience, use Personal Capital’s Fee Analyzer tool.
I know you want the best for your children. You’d love to be able to pay for their college education, so they don’t graduate with thousands of dollars of in student loan debt. But your kids have much longer to pay off those loans (and there are plenty of ways to get an education without taking out student loans for every penny of the cost) than you must save for retirement.
If you’re already behind in saving for retirement, you can’t afford to sacrifice even more time and money in order to fund your child’s college education.
Make Big Changes
Since you can’t find extra time for your investments to grow, you must find more money to invest. And I’m not talking about giving up your daily cup of coffee from Starbucks, I mean big changes that will give you a significant amount of additional money to invest.
You may need to downsize your home which is not unreasonable once you’re an empty nester. Moving to a lower cost of living area may not be feasible if you’re still working but it should be on your radar for when you retire and aren’t tied to a place by your job. But in the meantime, even a small move, moving just outside the city limits, for example, can significantly lower your living expenses.
If you’re a two-car family, what would you do if one of the cars was in the shop for repairs for a few days? Sell one of the cars and continue doing that. Use mass transit, carpool with your spouse or co-workers, walk, cycle, and use a ride share service when necessary. The odd Uber trip is way less expensive than a car payment, gas, insurance, maintenance, and repairs.
Bring in More Money
You might associate the term side hustle with Millennials, but everyone should have a second stream of income, especially if you’re trying to bring your portfolio up to speed. There are dozens of side hustles, driving for Uber or Lyft, renting out your home on Airbnb, picking up freelance work on sites like Upwork and Guru, and selling stuff on sites like eBay and Etsy.
The average American household watches nearly 8 hours of TV per day. No! You need to use some of that time to make some extra money.
Earmark Extra Money
From here on out, any extra money you get doesn’t go to lifestyle upgrades, it goes to your investments. By extra money, I mean things like raises, bonuses, tax refunds, inheritance, and the money you won at the track (please don’t go to the track!).
While we’re talking about raises, when is the last time you got one? If it’s been a few years, go to your boss armed with all the reasons you deserve a raise and ask for one.
Get Some Advice
When people start creeping towards retirement age and realize they don’t have any or enough saved for retirement, panic can set in and they either become too paralyzed with fear to make any decisions or make poor decisions based on fear.
This is the kind of situation where the advice of a Certified Financial Planner can be invaluable. A CFP will look at the whole of your financial situation. Things might not be as bad as you thought, or they might be worse. Either way, a CFP can help you make a plan that will get you where you need to be financially.
Today is the Day
None of us has a time machine. If we did, we wouldn’t have to worry about retirement because we’d hop into our TARDIS and buy a TARDIS load of Apple stock in 1980 for $22 per share (shares are currently selling for $218.75).
The best time to start investing was twenty years ago. The second-best time is today. So, no more waiting. Start investing today.
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