Most people know that the earlier they start saving for retirement, the better. But, life happens. Maybe you didn’t earn enough to contribute to your retirement in your 20s or 30s. Maybe a financial disaster meant you had to withdraw your savings, sending you back to zero. Then, suddenly, you’re 40 with no retirement account.
While the situation may appear dire, there’s no need to panic. There are things you can do even if you’re 40 with no retirement account. Start with these tips.
Do the Math Before Opening an Account
A significant amount of your retirement strategy focuses on the amount of money you need to be comfortable. That means you need to crunch the numbers.
Since you have no retirement account, you know you’re starting at zero. But, what you might not know is how your expenses will look.
You need to estimate your monthly costs, including everything from housing to food to health care. Then, take a look at your Social Security account, as you’ll likely receive at least something from there. Remove that amount from your cost estimate to determine your monthly shortfall.
Use a Retirement Calculator
Then, try out a handy retirement calculator to see how much you need to save. You can adjust the potential return rate, letting you know the difference between investing conservatively and aggressively.
Since the average rate of inflation is 2% to 3% per year, it’s important to factor in that many costs increase with time. Additionally, most people see their medical expenses grow as they age, so make sure to adjust your estimates accordingly.
As an example, if you pay $600 per month in living expenses, that could easily become $1,084 per month based on a 3% increase of inflation over the next 20 years.
That said, it is possible to bring down certain expenses. If you own instead of rent and you pay off your home by the time you retire, your housing costs will likely be lower.
On the other hand, medical costs might make up the difference — and then some — especially because health care prices tend to move up faster than the average inflation rate and insurers are picking up less of the tab.
Make Up for No Retirement Account
Now that you’ve seen the numbers, it’s time to get into the action. You need to be aggressive about saving for retirement to make up for no retirement account, so be ready to direct every spare dollar toward the goal.
If you have access to an employer-sponsored plan, like a 401(k), plan to max it out. This is especially true if the company offers a match, giving your savings an additional boost at no cost to you.
Then, consider opening an IRA to bolster your savings even if you are using an employer-sponsored plan. There’s no reason not to have both. Just make sure your contributions are within the employer-sponsored plan or IRA limits set by the IRS.
Once you reach age 50, the IRS allows you to make catch-up payments — right now they’re an extra $1,000 per year but 10 years from now, the figure could be higher. Factor those into your long-term calculations and consider planning for them in advance.
If you have control over your investments, such as being able to select your own funds, then consider being aggressive here too. While you may be taking on more risk, a well-diversified fund can offset it a bit. When in doubt, speak with a financial advisor to see which options may work for you.
Consider a Brokerage Account to Catch Up Faster
There’s no rule that says all of your spending money during retirement has to come from a retirement account. In fact, using additional investments from a brokerage account is a great option.
If you’ve already committed to putting the maximum amount allowed in your retirement accounts this year, open a brokerage account and invest more that way.
In many cases, you can access similar funds to the ones in your retirement account, so you can mimic the same strategies of across the board. Or you could always use the brokerage account to further diversify beyond what you already have.
Believe it or not, you still have a lot of time to make up ground even if you’re 40 with no retirement account. Just dig deep and don’t give up. You may be surprised at how far you can get.
When did you start saving for retirement? Tell us in the comments below.
Read More About Retirement Planning
Looking for more great retirement planning articles from Saving Advice? Check these out:
- Should You Really Postpone Your Retirement?
- Middle Class Adults Only Have $20,000 Saved for Retirement
- Early Retirement Without a Huge Nest Egg
- Reconsider Roth IRA Contributions Over the Next Decade
- 5 Things to Keep in Mind on National Employee Benefits Day
- How Mutual Fund Fees Impact Your Retirement
- Avoid Outliving Your Retirement Fund
- Should You Borrow Against 403(b), 401(k) or Other Retirement Plans?
- Best Way to Save for Retirement
- Why Stock Market Trading is the Ideal Retirement Hobby