Better Late Than Never

If you’ve gotten a late start in saving for retirement, there are still solutions that can help you maximize the money you’ll have later in life

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You’ve hit that milestone birthday — the one that starts with a five, or even a six — and, in spite of all those good intentions, you never really did get serious about retirement planning. You’re not alone. The Aegon 2013 Retirement Readiness Survey found that while 66 percent of respondents know they need to have a plan for retirement, only 12 percent have one that’s “well developed.” Twenty-four percent of women have no plan at all.

The good news is that there are still options for folks who are getting a late start in the retirement-planning game, says Daniel Collins, CFP, director of financial planning with New York City-based accounting and wealth management firm WealthEdge. While you may not be chartering a sailboat to cruise around the world, there are a number of strategies that can significantly bolster the funds you’ll have later on. Follow these steps to get your retirement planning on track.

Run the numbers. Scary or not, the first thing you need to do is take a look at what your retirement needs are going to be. How much income will it take to support the retirement life you envision? What is the bare minimum you’re going to need? This is no time to stick your head in the sand. In order to set a goal, you need to first know what it is, Collins says. This is a good time to sit down with a good fee-based financial planner. Or, if you’re committed to the do-it-yourself approach, the American Institute of Certified Public Accountants has a calculator to help get you started.

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Max out your employer’s retirement savings match. This is a no-brainer and the first action you should take toward saving, Collins says. Some employers match your retirement contributions up to a few percentage points of your salary. Different employers have different ways of calculating matches, but let’s say you earn $50,000 per year, and your employer matches half of your contributions up to 6% of your salary. Direct $125 pre-tax dollars out of each of 24 paychecks to your 401(k) ($3,000 per year) and your employer will kick in $1,500 to your account. Double that and you get a $3,000 match contribution — and your taxable income is reduced by the amount you contribute.

Ditch the debt. If you’re carrying high-interest credit card or other consumer debt, getting rid of it should be your number-two priority, says Tyler Gray, a fee-only financial planner with SageOak Financial, LLC in Tulsa, Okla. After you’re maxing out your employer matches, channel any extra cash toward paying off this debt. “Paying off a credit card with a 15% interest rate is like getting a 15% guaranteed rate of return on your investment.”

Use your catch-up options. If you’re age 50+, you can contribute more to your IRA and 401(k) plans than younger folks. In 2013, you can contribute an additional $1,000 to your traditional or Roth IRA (maximum contribution $6,500) and an additional $5,500 to 401(k) or 403(b) plans (up to $22,500).

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Choose retirement over college contributions. Don’t sacrifice your retirement savings for your children’s college tuition, Gray advises. While this is a difficult decision, if you don’t have the funds for both, choose retirement first, he says. “There are loans for your kid's college, but I've never heard of a loan for retirement,” he says.

Start a side business. If you’ve always wanted to do a bit of consulting work or open up that part-time catering business, it could deliver two benefits: First, it should bring in some extra cash that you can use for retirement savings. In addition, your business might make you qualified to open additional retirement savings accounts with higher savings thresholds, allowing you to save more. For example, a simplified employee pension account (SEP) allows you to contribute 25% of your compensation up to $50,000 in 2013. This is a tough area to navigate on your own, especially if you hire employees — you’ll have to establish accounts and make contributions on their behalf, too — so, strongly consider hiring some professional help.

Be strategic about Social Security. If you’ve accumulated enough credits to claim Social Security, how you do so is a tremendous financial decision. Credits are essentially quarters, consecutive or not, during which you earned enough to contribute to Social Security through withholding and did so. If you’re eligible to receive a $1,000 per month benefit at full retirement age (66 or 67, depending on the year in which you were born), you will receive only $750 per month if you claim benefits at age 62. However, if you wait until age 70 to claim benefits, that monthly payment increases to $1,320.

The decision about when to claim your benefits can also be influenced by whether your spouse was a high-earner, entitling you to a higher survivor benefit after he or she passes, or if you have had serious health issues that could affect your life expectancy. So, look at all the benefits to which you might be entitled, your expected longevity, and how soon you actually need the money to get by before you actually file your claim, Collins says.

The one thing you shouldn’t do when you’re behind in retirement savings is delay. Get started as soon as possible to maximize the possible income you’ll have in retirement.