The journey from working life to a retired life is quite difficult- both emotionally as well as financially, but it is inevitable in the life of a working person. This may be a full retirement or partial retirement say you start doing some part time job or it can be an intermittent retirement, but the bigger challenge is being able to see our future selves. In the early stages of our career and even in the 40s, most of us don’t think seriously about retirement. It isn’t until about age of 45 or 50 years that the impending reality of retirement hits home. And then we get a little stressed about our financial position.
In such a thinking you are not alone. Various surveys conducted by some of the NGOs and other agencies like Employee Benefit Research Institute (EBRI) said that many of the people have very less saving and had not planned for their retirement even up to the age of 50 or so.
This fact does not make your situation any brighter, but getting stressed or worked up for this delay is also not going to help in any ways. It is better to get motivated to move ahead and make your retirement plan seriously without any further delay. There are a number of actions you can take to make up for the lost time. Much of it gets back to the old- fashioned advise of spending less and saving more and it works.
Some practical steps which may help you in this regard are as under :–
Few Important Steps :–
- Make a Budget :- As I have repeatedly impressed, prepare a Realistic Budget. I would underline the word Realistic. This is the time for complete honesty about your financial status. Write down factually about your Earning from all sources & Expenses. Divide your expenses into two categories such as
(i) Non-discretionary–like Mortgage, Rent, Groceries, Transport, Insurance Premiums, Taxes, Debt payments and loans, if any.
(ii) Discretionary –like Restaurants, Entertainment, Travel, even Clothing etc.
Track your spending for at least two months, may be even more and compare it with your projections or budgeted amount. Now adjust your budget so that you can reduce your expenses to the maximum and correspondingly increase your savings. For this purpose, online budget tools, will make it easier to see precisely where your money is going and where you can make change
2. Get Out of DEBT :– If you are carrying debt like credit card balance, try to eliminate them quickly. These debts are carrying very high rate of interest say 15 percent and this becomes very big amount over a period as some of us pay only the minimum amount against our credit card. Those interest charges are actually increasing your debt. Paying that full amount quickly will save us extra 15 percent- money which can add to our savings. Similarly, the car loan is also very expensive as the interest rate charged is quite high. This loan should also be paid at the earliest.
After paying these high interest rate loan or debt, you must try to repay the mortgage debt especially before retirement, so that full amount of pension and social security is available to you.
3. Contribute Maximum Amount to Pension & Retirement Fund :–
Retirement accounts offer significant Tax advantages and the money gets compound tax-deferred , leading to potentially faster growth. So, contribute regularly to the retirement accounts; the earlier you start, the better it is. Further, the employer’s contribution to the fund would also increase, if you pay maximum permissible amount towards this regularly. This amount when you get after retirement, would be a big help. Further, this will increase your social security amount also.
4. Develop an Investment Plan :–
Our savings or money should grow more money with time. That can be achieved by putting your money to work by investing. Think about these factors:
(i) How much time you have to keep your money growing.
(ii) How much risk you are comfortable with.
Depending on these facts, you can invest your money with a combination of stocks, bonds and bank CDs or FDs. Mutual Fund can also be thought for investment purpose.
As you would like to protect your money from the market volatility, especially when you are in your 50s and there is hardly any time to take any risk with your hard earned money, it is important to balance your investment portfolio.
Conclusion :—
It is best if we can plan for our retirement from the start of our career. A small saving at that time can become a big kitty by the time we retire due to the magic of Compounding.
But, if you are starting your investment journey in your fiftys or later, it is still not very late. Though the investments now will require a different thinking and strategy. It is also advisable to involve your spouse and grown up children while planning your budget. This will avoid a lot of family problems and misunderstandings in future. Also, a family owned budget will have a backing from everyone in the family and it’s implementation will be much more smooth.