Saving for retirement is tough enough for those who start young. The situation is even worse for people who don't start saving until their 40s or 50s. Without the time to let compounding grow your wealth, building a retirement nest egg is extremely difficult. Here are some strategies for baby boomers who are just starting to save for retirement:
1. Take stock of your finances. The first step is to take stock of your current situation. You need to determine how much money you currently have saved and how much you will get from Social Security. Most baby boomers have at least some savings. Consider using a free tool to track all of your investments in one place. You can also get a projection of your future Social Security benefits on the Social Security Administration's website.
2. Scrub your budget. Many people fall into the trap of convincing themselves they don't make enough to save, but for most people this is simply not true. Controlling spending is critical to saving for retirement. The best way to reduce spending is to understand where and how you spend your money.
First, look at your monthly bills and determine whether you can eliminate each expense or reduce the cost. This method is often the easiest way to decrease monthly expenses. Second, look at all discretionary spending and determine how important those expenses are to you. You may need to cut back on eating out, expensive hobbies, travel and entertainment in order to jump-start your retirement savings. This process may not be easy, but for those late to the retirement savings game it is critical.
3. Set realistic goals. Once you understand the condition of your finances and how you can cut back, setting realistic goals is the next step. These goals may include how long you'll work, where you'll retire and your retirement lifestyle. Retiring at 65 may not be realistic. It's becoming more difficult to retire at age 65 because many people live decades beyond that. It may be helpful to use a retirement calculator to run some numbers.
4. Don't make up for lost time. It can be tempting to try to make up for lost time with very aggressive investing. While a 100 percent stock allocation could potentially produce the highest returns over time, most people cannot stomach the ups and downs of an all-stock portfolio. And high stock allocations can be particularly dangerous for people who are within a decade of retirement.
While there is no one "right" portfolio, a more moderate investment plan that includes 20 to 40 percent in bonds is more realistic for the vast majority of baby boomer investors. The key is to make sure you can stick with the plan regardless of what the stock market does.
5. Seek sound and low cost advice. A trusted financial advisor can help you select appropriate investments, decide when you are ready to retire and offer insights you might miss on your own. A certified financial planner can also help you budget, set goals and invest. The key is to avoid high cost advisors.
Given the limited time some baby boomers have to save for retirement, they simply cannot afford to hand over 1 percent or more of their portfolio every year to an advisor. It's worth the time to find a low cost advisor who can help you with portfolio construction.
Rob Berger is an attorney and founder of the popular personal finance and investing blog, doughroller.net. He is also the editor of the Dough Roller Weekly Newsletter, a free newsletter covering all aspects of personal finance and investing, and the Dough Roller Money Podcast.
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