Q: I'm 45 and I'm way behind on my retirement savings. What can I do?
A: Plenty! You have about 25 years before you retire (the standard 65 is inching toward 70), so let's make the most of the time you have.
Hint: If this topic makes you anxious…Read. Very. Slowly.
Your current savings rate:
Let's say you have $10,000 in your 401k, your yearly income is $50,000 and you're contributing 3%. That's $1,500 ($50,000 x .03 = $1,500).
In 25 years, at that rate (discounting any company match), you would have about $182,000, assuming an 8% return (i.e. how much your investments will grow per year). We used this calculator.
Increased savings rate:
Starting this month, kick up your savings rate a third of a percent or $150 ($50,000 x .003 = $150). That's about $5 a day. Can you spare $5 a day to feel more secure? We think so.
Taking this incremental approach, ratchet up your savings rate until you are salting away 15% of your income. That will take at least three years, if you increase your savings monthly. But look at the payoff:
… You are now 48, your nest egg is about $20,000, and you're on track to save $542,000.
How can you bump up your savings to 15%, even incrementally, even over six years?
- You're only 45 now, you have time to boost your income.
- If that doesn't seem likely, re-read yesterday's empowering post.
- Start using a budget like this one.
- Inspire yourself. Play around with the calculator above. What if you saved 16%? 20%? Take in a fresh perspective, like this one on a bootcamp for pre-retirees.