Over 40 with nothing saved?
A THREE-STEP GUIDE TO TURNING THE RETIREMENT FUND SHIP AROUND
Don’t get fooled into thinking you can’t start saving for retirement if you don’t have much money.
Hitting the big 4-0 with nothing in the bank for retirement isn’t ideal. But it’s not too late to take a hard look at your finances, devise a plan, and get some money in the bank.
Step one: crunch numbers To create a retirement plan to guide you forward, you’ll need four key numbers:
The age you plan to retire at; The estimated number of years you’ll depend on retirement savings;
An annual estimate of retirement living expenses; and Current savings. Consider any potential income you may have in retirement. Estimate your retirement expenses, focusing on big-ticket bills like food, housing, utilities, transportation and healthcare. Run your numbers through a retirement calculator (a Google search will help you find one). Enter your age, salary and lifestyle details, and it creates a graph that shows your estimated retirement income, projected living expenses, and any gap between the two.
You’ll have to aim to save 17% of your annual income —assuming you already have some money saved. Once you determine how much you need to live on, you can start making adjustments.
Step two: assess and trim your living expenses
Categorise your expenses into “needs”, “wants”, and “savings”. Slash spending from your “wants” category by identifying and cutting out unnecessary expenditures.
Next, target your “needs” to see what can be trimmed. Consider other small changes, too: can you do the garden yourself or clean your house? Can you make lunch at home and not eat out? Have you checked your home assessment for a chance to lower your property taxes?
Consider downsizing your home. Buying a cheaper residence frees up more of your money and often decreases your bills.
If you’ve been planning for a vacation or a new car, earmark that money to your retirement instead. Add little windfalls you come into – like income tax refunds, overtime pay and bonuses – to your retirement savings.
Total the amount you’ll save each month from these changes. First channel all these funds into paying off your debt (except for your home) and to having a fully-funded emergency fund (3-6 months of expenses).
Get on a budget. Budget for the basics then tackle your debt using the debt-snowball method. Once you are debt-free, adjust your focus to retirement investing.
The new disposable funds will become your first retirement contribution. If you’re starting with small monthly deposits, consider upping them by 5% or 10%, or even 20% to 30% each year.
Step three: consider new opportunities to earn
Now focus on earning more money. Start with your day job. Ask for a raise or apply for a better-paying job (or one with better benefits).
Next, look outside of your 9-to5. Rent out a room, or start a side business. Can you turn your hobby into a cash generator? Consider working a part-time job. Switch to a debit/credit card that offers cash back on your purchases. Route any additional earnings straight to your retirement plan.
The other significant thing you can do is work a few extra years. It’ll get you a higher retirement maturity benefit, give you the opportunity to save more and afford whatever you save more time to earn investment gains and grow.