It’s not too late.
You may be in the middle or late stages of your career, look around and think: How did I get here so fast? So much has happened, and I’m not sure if I’m prepared for the next stage.
The business of life means we’re often focused on the present instead of the future. You may wonder whether you’ve saved enough for the last phase of life: your retirement.
Thinking about it is the right first step. To work on recovering from a late start on retirement planning, you can follow these strategies from Domani Wealth.
Finances can be incredibly complex and convoluted. It’s important to take inventory of your current assets and liabilities. Keep track of insurance policies and their details such as: premiums, coverage amounts, terms, and other related information. Take inventory of all retirement accounts, brokerage accounts, and pension plans. Nail down how much you’re currently contributing to retirement savings. Understanding what you have is really the first step to recovery on retirement planning.
Manage Cash Flow and Reduce Spending
Cash flow is like the foundation of your home. If the foundation of your home starts to settle, sink, or develop cracks, you will need to get a contractor to repair the damage. If not, you will most likely experience cracks throughout the interior of your home, sticking windows and doors, and water in the basement, which could even lead to mold damage. Similarly, a crack or major issue in cash flow can lead to a disaster in the structure of your finances. Freeing up cash flow will help you overfund or “catch up” on the savings you may not have prioritized earlier.
Freeing up cash flow isn’t the easiest; often it requires us to limit or reduce our expenses. A good first step is to develop a budget. Focus on cutting back on extraneous expenses, such as regularly eating out and shopping name brands. Packing lunches and using coupons can provide ample savings alternatives. Another strategy to reduce expenses is refinancing, whether something like your mortgage or other types of loans. Refinancing debt will lower your monthly payments and provide cash flow flexibility to contribute to retirement savings. Currently, interest rates have dropped, so refinancing may be a major help to get you on the right track for catching up on your retirement funding. If you look to refinance, make sure you are aware of all costs and fees associated with refinancing before proceeding.
Reduce and Eliminate Debt
Debt reduction can be one of the most important steps to financial freedom. Create a realistic but aggressive plan to eliminate your debt. After you’ve taken inventory of your debts, create a plan to prioritize which debts you will eliminate first. Since increasing cash flow is the most important objective, consider ranking debts from smallest to largest, and pay off the smallest first. Use the additional cash flow from paying off a debt to apply toward the next smallest until you have eliminated all your debts. The additional cash flow gained will help to reduce the amount of cash needed in retirement and increase your savings toward retirement.
Maximize Defined-Contribution Plan and Take Advantage of Catch-Up Contributions
If you have managed your cash flow efficiently, focus on maximizing your 40l(k), profit-sharing plan, or any other defined-contribution retirement plan. The maximum contribution to a 401(k) or 403(b) under age 50 is $19,500 in 2020. The IRS also allows individuals over the age of 50 the opportunity to take advantage of catch-up contributions. For 2020, an individual can put $6,500 of catch-up contributions into their 40l(k) or 403(b). If you’re feeling like you’ve had a late start to saving for retirement with retirement planning, it’s critical to take advantage of this opportunity, especially with the effectiveness of compound interest.
We know that for many, even the thought of leaving the place where you made so many memories is painful. You’ve put years into making a house into your home. Thinking about selling a home you’ve spent much of your life in can bring on a whirlwind of emotions. Unfortunately, you may be in a situation where downsizing is necessary to help you feel comfortable in retirement. Downsizing can provide thousands of dollars to be used to help fund your retirement goals. For example, if you sell a home with its mortgage fully paid off for $400,000 and downsize to a home with a price of $250,000, you will receive $150,000 (less closing costs and realtor commissions). These proceeds can be invested to help fund your future living expenses. Also, downsizing helps to reduce monthly expenses such as utilities, mortgage payments, and taxes. For individuals who still have a mortgage, downsizing and eliminating mortgage debt will free up monthly cash flow that can be saved, with the same benefits of reduced maintenance and tax costs.
Work with a Professional to Develop your Financial Plan
It’s not always comfortable to talk about income and cash flow with just anyone. This can lead to us making financial decisions on our own, which can sometimes have negative results. If you have a medical concern, it’s best not to use WebMD to find a cure, but rather, visit a medical specialist to help heal you. The same concept applies to your retirement planning. It may make sense to have a professional develop a financial plan for you. Most Certified Financial Planner® professionals (CFP’s) use specialized software and deep expertise to help define how prepared you are for retirement. You may feel like you’ve waited too long to save, or question whether you’ll have enough savings to be as comfortable as you’d like in retirement.
It’s not too late – you can start working on a plan with professional help by contacting us today! At Domani Wealth, we listen to you and understand your needs without speaking jargon at you or setting you up with a one-size-fits-all plan. We’re independent and fee-based, which means we don’t earn commissions and aren’t limited to specific product offerings. Instead, we review all options and customize what will most help you reach your goals and have the opportunity for a better tomorrow.