Last month’s Moms On Money question was about how to manage your retirement savings. There was some great advice, and some great questions. This one comes from Michelle at A Dish of Daily Life:
”This is great information! What do you suggest though for those that are in their 40s and don’t have the savings they need?”
Back to answer her question are some of our panelists! First up, Done By Forty:
My first piece of advice is to try hard not to beat yourself up over the past. So you might not have enough savings right now: no big deal. The past is done and gone, and it’s much better to be working on retirement savings today than ten years from now.
As for how to start saving more, I think it starts with the monthly budget. If you don’t yet have a system for tracking your spending regularly, find one that works for you (we use a simple spreadsheet, but others like Mint). And once you find out where your money is going every month, you can build a strategy to optimize your spending. In my opinion, the best place to find money for retirement is in the income you already have, by cutting out spending on things that aren’t that all that beneficial for you anyway. In our house, that was meals and drinks out: they killed our monthly budget and didn’t do any favors for our waistlines, either. Then we started trimming our spending on clothes, household stuff, and other things that, honestly, were just retail therapy. It took months and years, and we got there one small decision at a time. But now we’ve found hundreds & thousands of extra dollars every month that we can put towards our retirement savings.
Next up is Joe Saul-Sehy from Stacking Benjamins:
If you’re in your 40’s and don’t have enough savings, here are a few quick tips:
1) Make your goals concrete. It’s hard to save because all of us have LOTS of pressing needs RIGHT NOW. By making your goal more specific you’ll create more urgency in your mind and stay motivated.
(I know that first point sounds Pollyanna, but it isn’t. I saw so many people fail when I was a financial planner only because they couldn’t stay on the savings wagon. You have to trick yourself into saving.)
2) Hold family budget meetings and every meeting try to put more on autopilot. Find money to save and add it to automatic savings. Boom! More cash saved!
3) Look for opportunities to earn more money. Are there things around the house you can sell to make your Roth IRA contribution? Can you work more hours at your job? Is there a hobby you can turn into cash? By thinking of this “extra” money as your “savings plan” you’ll fill up your savings accounts without pinching pennies so hard Lincoln screams.
Barbara Friedberg lays out some specific numbers and investment vehicles:
If you are in your 40′s, you still have 25 years left to grow your investment nest egg. And, it’s not as difficult as you might think. Start investing as much as you can every month in a diversified stock index mutual fund and bond index fund. You can choose your workplace retirement account, a Roth IRA, and/or an account at a discount broker.
If you invest $5,500 per year (the maximum allowed by law) into a Roth IRA for 25 years and earn 7% annualized, then in 25 years your nest egg will be worth $372,220. That’s an investment of $5,500 * 25, or $137,500 growing to almost $400,000.
For more detail on investing with index funds, check out How to Invest and Outperform Most Active Fund Managers.
There are only three options if you are in your 40s and nearing retirement without the savings required:
1. Make more money
2. Cut back and save
3. Work longer
There is no easy answer and no magic pill.
To make more money, pick up a part-time job tutoring, babysitting, or even one on the weekends (don’t laugh, there are people who have done this!) and start saving that money for retirement.
Otherwise, if you make a decent income which is to say you can cover your living expenses and then some, start cutting back on things you previously thought were necessities, or were luxuries in your budget such as vacations (spend less!).
The last option is to not retire at 65 and to work longer. This is a fairly unpopular choice but a necessary one if you are unable to sustain your lifestyle at the age of 65 based on your lack of savings.
A big thank you to all of our panelists! I hope this information was helpful, Michelle! If you’re a mom, or anyone else, and have a finance question, submit it by leaving a comment below, or tweeting @femmefrugality or @MoreThanMommies. Your question could be featured in a future post!