Here’s Your Do-or-Die Retirement Plan If You Have Nothing Saved
If you’re concerned that you don’t have enough money saved for retirement yet, you’re not alone. More than 42 percent of Americans have less than $10,000 saved for retirement, according to a GOBankingRates survey.
Although this might give you some solace, it won’t help you reach the approximately $150,000 in savings that the average mid-60s retiree has. The good news is, with the right roadmap you can still put away a decent sum of money to help you get by in your later years — even if you’re already approaching retirement age. Sacrificing a bit now can pay big dividends when it comes to saving for the future.
Click through to learn how you can boost your retirement savings now.
Take on a Side Job
There has never been a better time to take on a side job as a freelancer. The so-called “gig economy” might sound trendy, but the economics underlying this working revolution seem to be here to stay. The gig economy includes everything from consulting and contracting to temping, freelancing, self-employment, side jobs and on-demand workers. Government economists estimate that by 2020, about 40 percent of the U.S. workforce will be laboring outside of traditional full-time jobs.
What You Can Save
Although fields like writing and music have long been the domain of freelance workers, advances in technology have brought professionals from a wide range of occupations under the gig-economy umbrella, from healthcare and tech to financial and legal services. Even if you can’t make artisan soap or craft handmade jewelry, you might be able to leverage your other skills into additional income. If you can pull in just $500 extra per month for 10 years before you retire, that’s another $60,000 toward your retirement.
Increase Your Retirement Plan Contributions
The U.S. government understands the need for older Americans to increase their retirement savings, so it allows “catch-up” contributions to the retirement accounts of those ages 50 or older:
If you contribute to an IRA, the standard contribution limit is $5,500 for 2018. If you’re 50 or older, you can contribute an additional $1,000 to your IRA, for a total of $6,500.
Elective deferrals to a 401k, 457, 403b or the federal government’s Thrift Savings Plan are capped at $18,500 for 2018. However, people 50 and older are allowed to defer an additional $6,000 into their plans.
What You Can Save
It might seem difficult to jump from no savings to the maximum contribution level overnight, but starting somewhere gives you a base to build on for the future. For example, if you start contributing 5 percent of your salary into a retirement plan, try to increase that amount in small increments on a quarterly or even monthly basis. If you bump up your contributions by 1 percent per month, for example, you might not even notice the difference from one month to the next. But by the end of the year you’ll have increased your contribution rate from 5 percent of your income to 17 percent, at which point your retirement savings will really start to accelerate.
To help you stick with your plan, set up automatic deductions from your paycheck or bank account. If you can reach that 17 percent savings level and you earn $50,000 per year, you’ll be tucking away $8,500 per year in your retirement plan, or $85,000 in total if you’re 10 years away from retirement.
Related: Yes, You Can Save $1M for Retirement With a $50K Salary
Cut Expenses
Living within your means is great advice for savers of any age, but if you’re staring down retirement and you only have a small nest egg, you’ll have to go one step further. Beyond simply living within your means, you might need to cut out some of your “wants” or luxuries if you plan on having a more secure retirement.
Learn about the dumb expenses you need to slash from your budget right now.
What You Can Save
In some cases, the best way to save on your expenses might be to move to a less expensive city. The more you can live without now, the more breathing room you’re providing for yourself in retirement.
Moving doesn’t have to be your first step, though. Start small and cut out $25 in entertainment expenses each month. Over 10 years, that equals $3,000 in savings.
Invest
Your retirement nest egg will last longer if you invest part of it rather than just keeping it in a savings account. The national average savings account yield as of June 4 was just 0.08 percent. With inflation running at 2.1 percent per year, you’re actually losing purchasing power by keeping all your money in cash or savings.
What You Can Save
No matter how conservative an investor you are, to get your money to last throughout your retirement, you’ll need some exposure to growth investments like stocks. Earning even 5 percent on a $10,000 portfolio over 10 years would result in about $6,300 of additional funds at retirement.
Learn More: What First-Time Investors Need to Know
Sell Possessions
You’ve likely acquired assets over your life that carry value, so ask yourself what purpose those assets now serve. For example, if you have an art collection or a classic car that are mainly just conversation pieces, they could be extremely valuable if you sell them and put that money toward your retirement. The right geeky collectible could make you millions. Other, more mundane items can also be sources of cash.
What You Can Save
For example, if you have an old CD or DVD collection, you might be surprised at how much money you could raise selling them online. The same goes for furniture you no longer need or use, or other household items. If you have possessions that would not reduce your quality of life if they disappeared, consider liquidating them as part of your retirement planning strategy.
Even just a few thousand dollars in sales can help you get closer to $150,000 in overall retirement savings.
Access the Value of Your Home
Home ownership is often overlooked when it comes to retirement savings, even though it represents a big part of many Americans’ financial picture. According to the U.S. Census Bureau, the nation’s homeownership rate was 64.2 percent as of the 2018 first quarter. With the median home value reaching $215,600 as of May 2018 according to Zillow, many American families actually do have the assets to help them get through retirement. The question is, how can you tap the money tied up in your home while still having a place to live?
What You Can Save
There are at least three ways you can unlock the value of your home and use it as a retirement funding strategy:
Home equity loan
Home equity line of credit
Reverse mortgage
The first two options let you borrow against your home equity in exchange for paying interest, just like a normal loan. A reverse mortgage is a special type of loan that essentially pays out a portion of your home equity in cash and doesn’t require repayment until you sell your home. All of these options have benefits and drawbacks, but they do provide you with a source of funds if you have no other options when it comes to retirement savings.
Learn More: 10 Best Reverse Mortgage Lenders for Seniors
Eliminate Credit Card Debt
“Bad” debt such as credit card debt can significantly damage your long-term retirement savings plan. It’s best to pay it off as soon as possible. Although it might be counterintuitive to send money toward debt service when you are trying to accumulate money for retirement, in the long run, you’ll be better off.
The average credit card interest rate for those assessing interest is 14.99 percent. This means that even without charging a single thing on your card going forward, the balance on that card will increase by nearly 15 percent every year if you don’t pay it off completely. If the card has a big balance, you could be looking at a hefty annual increase in your debt.
What You Can Save
If your debt is already crippling, there are additional options. Most unsecured debt, which includes credit card debt, can be discharged in bankruptcy. You can usually qualify for Chapter 7 bankruptcy if you fall under the median income for your state and are otherwise eligible. For example, the California median income as of April 2018 was $77,500.
You might also be able to negotiate your debt to a lower interest rate or even a lower balance — if you can make your case to your creditors. Either way, reducing or eliminating your credit card debt will go a long way toward making your retirement more secure. If you’re paying $500 per month in credit card debt, eliminating that payment could translate to an additional $6,000 per year in retirement savings.
Learn More: Signs You’re Going to Retire Broke
Saving for Retirement Is Feasible, Even If You Start Late
Adding up the hypothetical numbers in this step-by-step guide results in retirement savings over 10 years of $216,288, plus whatever value of your house you want to tap.
The message is clear: Even though a disturbing percentage of Americans fear never being able to retire, now is not the time to despair. If you haven’t saved anything substantial yet, get started. In a decade, you’ll have a nice nest egg.
Click through to learn what a comfortable retirement costs in every state.
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This article originally appeared on GOBankingRates.com: Here’s Your Do-or-Die Retirement Plan If You Have Nothing Saved
