What To Do If You’re 55 and Just Started Saving

If you’re age 55 and have just started saving for retirement, you’re not alone. Not everyone starts saving money in their 20s and 30s, and even if you start saving in your 50s, there’s time to build up your savings.

Strong financial discipline combined with the right money habits can help you retire on track, especially when factoring in Social Security and other forms of income. Here’s how to start.

Catch-Up Mode: Maximize Your Contributions

One of the best ways to catch up on retirement savings is by making the maximum contribution — or as much as you can up to the limit — to your 401(k) and individual retirement accounts (IRAs). These accounts allow for additional catch-up contributions for anyone who is age 50 or older.

The more money you contribute to retirement accounts, the more you get to capitalize on the tax advantages that come with them. While traditional retirement accounts require that you pay taxes on withdrawals, your money grows tax-deferred, and there’s a good chance you will have a lower tax rate when you retire. That’s because tax rates are based on your income, and if you are no longer working when you withdraw from your account, your income will likely be lower.

Get Rid of High-Interest Debt

Even if you are in debt, it may make sense to continue contributing to your employer-sponsored retirement accounts up to the employer’s match, if there is one. It’s essentially free money. But after you’ve maximized your employer’s match, it’s time to prioritize paying off high-interest debt.

Debt can make it more difficult to build wealth because a portion of your money has to go to paying interest. Credit card debt is especially notorious for having high interest rates. Try cutting your expenses so you have extra cash to throw at your debt, and review past credit card statements to see if there are areas where you can reduce your spending.

Canceling unused subscriptions and minimizing your discretionary spending can speed up your progress. The sooner you pay off high-interest debt, the sooner you can invest more money into your investment accounts.

Extend and Upskill

Increasing your income can help you retire sooner. While you can’t control how your assets will perform in the long run, you can grow your income by pursuing new opportunities. You may want to develop new skills, pick up side hustles or pursue a raise at work to make this happen.

Diversifying your skillset may also make it easier to semi-retire. This retirement model involves doing part-time work at retirement age instead of completely exiting the workforce. Semi-retirement offers you some of the time back you may be seeking from retirement, and you can pursue a part-time remote job for even more flexibility.

Semi-retirement may also be able to provide you with enough money to cover your living expenses and allow your portfolio to grow. You might even be able to contribute to your portfolio during semi-retirement. Committing to a part-time gig for a few years means your nest egg won’t have to stretch out for as many years, increasing the likelihood that your portfolio is large enough to see you through your full retirement years.

Focus on Progress, not Perfection

You’re not likely to go from zero savings to a fully-developed nest egg in one year, since it takes time to build a portfolio. But you can make gradual progress each day.

Celebrate the little moves you can make on the path to long-term financial goals. Acknowledge small wins like canceling an unused subscription, learning a new skill that can turn into a side hustle and asking your employer for a raise. These actions add up, and while you may not see the fruit of your labor immediately, it may become more apparent after a decade.

 

This article was written by Marc Guberti from Money and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.