How to save for retirement when you’re off to a late start

How to save for retirement when you’re off to a late start
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A lot of people get a later start in life when it comes to saving. It’s human nature that most people don’t even think about it until they turn 40. But if your retirement plan consists of being wheeled out of work on a gurney straight to a funeral home because you’re working right up to your last breath…well, maybe it’s time for a rethink!

We went through two generational cycles where people were able to retire at a younger age, relative to their lifespan, than at any time in history. Some people were calling it quits in their 50s because they had a pension and then Social Security later in life. So they never had to work another day in their lives. That meant people having 20 or more years in retirement.

Today, though, pensions are mostly gone and people are not saving enough. For most people, the new magic number is age 70.

If you’re getting a later start at saving, here are some things you’ll need to know…

Read more: Should you save for retirement or pay down student loan debt?

Work longer than you expected if you’re able

In the past, it was very common to retire and take Social Security at 62. But for every year you wait after 62, you have a roughly 8% return per year on your Social Security lifetime benefit. So if you wait from 62 to 70, the amount that Social Security pays climbs dramatically.

If you are physically able and planned to stop working in your 60s, but you don’t have a lot saved, consider working as long you’re healthy—especially if you’re a woman likely to outlive her significant other or if you know you’re genetically blessed with longevity in your family. You don’t want to outlive your money!

Know how much you’ll need to retire

By age 35, you should have one times your annual salary saved up for retirement, according to the latest numbers from Fidelity Investments. Five years later, you should have two times your annual salary. And on and on, until you reach 67 when you should have eight times your annual salary saved. Laid out visually, the Fidelity guidelines for individuals look like this:

  • By 35, save one times your gross annual salary
  • By 40, save two times your gross annual salary
  • By 45, save three times your gross annual salary
  • By 50, save four times your gross annual salary
  • By 55, save five times your gross annual salary
  • By 60, save six times your gross annual salary
  • By 67, save eight times your gross annual salary

Know how much to save when you’re starting later in life

Years ago, Clark popped up a chart on his website that showed how a 15-year-old teenager could save just $2,000 a year for 7 years. And then, never saving another penny again, the money would grow to be $1,000,000 at 65 thanks to the magic of compounding.

It sounds amazing, but it’s true. But don’t worry if you’re far from your teenage years. This MarketWatch story came to the same conclusion using different numbers. According to their findings, here’s what you have to save each month to retire a millionaire — if you start with $10,000 invested and your portfolio grows by 7% every year:

  • 25 year olds have to save a little over $300 a month. That’s just $10 a day for the rest of their working lifetime.
  • 35 year olds have to save $775 a month.
  • 45 year olds have to save $1,850 a month.
  • 55 year olds have to save $5,700 a month.

Strive to reduce debt in your life

Being debt free buys you so much freedom. And today it’s easier to become debt free than at any time in recent memory because of dirt cheap interest rates. If you’re still paying high interest rates, like on a credit card, get a lower interest card if you can qualify and transfer the balance.

Look at that box on your monthly statement and see what you’d have to pay to be debt free in three years. Then resolve to pay that each and every month. You need to budget money to pay down your debt just as you would budget for rent or a mortgage or a car payment.

Play catch-up with retirement savings

If you’re coming into the savings game kind of late, you can play catch-up. You have to be 50 or over to do this, but here’s how it works:

  • If you have a 401(k), 403(b), most 457 plans or the federal government’s Thrift Savings Plan, you can make an extra $6,000 contribution in 2016. (That’s on top of the existing $18,000 contribution limit for these plans.)
  • For those with IRAs, your can contribute an additional $1,000 in 2016, for a grand total of $6,500 in annual contributions.

Be sure to work with fee-only financial planners

If you decide to enlist the services of an advisor, be sure he or she is what’s called ‘fee only.’ That means they earn their income on an hourly or ongoing basis, not on commissions from the investments they steer you towards. Visit (The National Association for Personal Financial Advisors) for ongoing fee-only help planning for retirement or for one-time advice on an hourly basis. 

Read more: 18 easy ways to make extra cash on the side

Big investments start with small steps

Theo Thimou About the author: Theo Thimou
Theo is director of content for He has co-written 2 books with Clark Howard, including the #1 New York Times bestseller Clark Howard's Living Large in Lean Times.
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