Once you reach your 40s, the prospect of retirement, which one seemed so far off, can start to be daunting. The good news is that even if you’ve been a bit lackadaisical in figuring out your retirement plans up until this point, you still have some time to get them in order.
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Figure out a number. You’ll never get anywhere if you don’t know where you’re going. Sit down and take a hard look at your current and future expected expenses, income and savings in order to establish what you think is a reasonable figure that you will have to have saved for retirement. Don’t let that figure discourage you if it seems impossible to reach. It’s important to have a goal to work towards and it’s better to face reality now than on the eve of retirement.
Accelerate your mortgage payoff. Whether or not you plan to stay in your house for the long-run, accelerating your mortgage payoff can be a good idea. If you do sell in the future, increasing the equity in your home will leave you with a bigger pile of cash when you do. If you stay put, lowering your monthly expenses sooner will allow you to save more and require you to spend less once you do give up that full-time gig.
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Think about downsizing. As your kids begin to head off to college, you may be paying hefty taxes to live in a town that prides itself on a great school district that you no longer need. Moving just a town or two over or finding a smaller house or townhome in the same neighborhood could help you save on taxes. The sooner you make this move, the better because your lower taxes can be funneled into retirement savings…
Start preparing for catch-up contributions. Speaking of which, once you turn 50, the IRS allows you to put more money into tax-advantaged retirement savings account. Start planning for this increase in your budget now so that you can take full advantage as soon as you’re eligible. The increased contribution limits allow you to put away an extra $6,500 ($5,500 in your 401k and $1,000 in your IRA) in 2013. Even if you aren’t in a position to take advantage of the entire catch-up, every little bit will help.
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Increase your income. While bringing in more cash each month is never easy to do, your 40s may be your last chance to make a big push. Get creative with your strategy — increased income could mean a spouse going back to work, investing in a property that provides a monthly cash flow or changing jobs if that’s an option. Rather than using the extra funds to increase your lifestyle, make a goal to save your extra money so that it can work for you when you’re no longer working yourself.
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