Your Investments: Retirement investing: Making up for lost time

Here are three steps that can be taken to get you back to where you need to be financially to retire.

Dollar bills 370 (photo credit: Steve Marcus / Reuters)
Dollar bills 370
(photo credit: Steve Marcus / Reuters)
After having worked so hard and having “followed the book” when it comes to saving for retirement, many pre-retirees have seen their investment portfolios drop significantly in recent years, leaving them wondering what can be done to have enough money saved up to retire. They are in what is called “catch-up” mode.
Here are three steps that can be taken to get you back to where you need to be financially to retire. Before I present these tips, I would like to caution investors against trying to make back their money by becoming too aggressive with their investments. Recently I met with a do-it-yourself investor who said, after having taken a bath in the market, he decided that to hit his retirement goals, he needed to quickly make back all his money. He then proceeded to make very aggressive investments, and not only didn’t he make his money back, he added insult to injury and dropped another 20 percent. I can’t tell you how often I hear this same story.
Keep working
While this may not be the most cheery advice, it may be the most effective. Delaying retirement by a few years can be a huge factor in being financially able to retire. By working, not only do you push off tapping your retirement funds, you can keep saving for a couple of more years.
According to the Oblivious Investor website: “Whether it’s sticking it out for an extra couple years at your current job or picking up part-time work in a more enjoyable field after leaving your job, retiring later is often the highest-impact thing you can do for your retirement finances. Each additional year of work is one more year to accumulate savings and one fewer year of spending from your savings.”
Maximize your savings
You might say you can’t save any more money. Well as you get closer to retirement there is a good chance that your kids may be out of the house, which means that you can save on tuition. It’s also important to create a budget where the first expense item is to “pay yourself first.” If you create a disciplined budget with an increase in built-in savings, you will be surprised at how much you will be able to sock away. It may not be fun, but you have no choice if you want to be able to retire.
According to an article in The Wall Street Journal: “The place to start is by being aggressive about saving. More is always better, but even relatively small amounts of money can make a difference. And with the kids out of college and hopefully out of the house, being disciplined about budgeting and potentially downsizing a home sooner rather than later could free up helpful amounts of money from each paycheck. Financial Engines [a retirement website] looked at scenarios for a 50-year-old earning $65,000.
Putting 6% of that salary per year in a mix of stock and bond funds would likely lead to a portfolio at age 65 that should generate $31,700 of income annually for life. Bump that savings rate up to 8% – an additional $100 each month – and income at age 65 would be $33,500. That’s an additional $150 more in income per month.”
Delay Social Security
While you can start taking Social Security benefits at age 62, for those still working and trying to build savings for retirement income, it pays to wait on taking your benefits until you reach the age of 70. According to an article in Forbes: “You can start drawing early retirement benefits from Social Security at age 62, but it pays to wait, especially if you continue working past that age, and is crucial if you’ve begun saving late. Delaying the start of Social Security benefits until age 70 can boost the monthly payout by as much as 80%” A former coach of the Seattle Seahawks, Chuck Knox, used to say, “You have to play the hand you’re dealt.”
While it may not be how you envisioned your preretirement years, if you take the tough, necessary steps now, you can still enjoy a financially independent retirement.
[email protected] Aaron Katsman is a licensed financial adviser in Israel and the United States who helps people with US investment accounts.