- Calculate precisely how much you'll need for retirement and how much you currently have saved. Although it's tempting to avoid this task when you don't want to hear the answer, finding out how much you'll be short can be a very big motivator in changing your behavior.
- Use your peak earning years to substantially increase your savings. Typically, your last few years of employment are your peak earning years. Instead of increasing your lifestyle as your pay increases, save all future pay raises. Consider downgrading your lifestyle, putting any cost reductions into savings. This can also help reduce the cost of your retirement, since a lower lifestyle now typically means you'll be satisfied with a lower lifestyle during retirement.
- Have a nonworking spouse re-enter the work force. Your children may now be out of the house or at least won't require as much supervision. It may make sense for a nonworking spouse to re-enter the work force, saving all earnings for retirement. Or you might want to take on a second job or start a business for additional income.
- Contribute the maximum to tax-advantaged retirement plans. If your employer matches contributions to a 401(k) plan, contribute enough to take advantage of all matching amounts. This automatically increases your savings by the amount your company matches. Also look into traditional and Roth individual retirement accounts.
- Sell your house and buy a smaller one. At a minimum, the move should reduce your living expenses, allowing you to put the difference in savings. If you have significant equity in your original home, you may have proceeds left over that you can put into savings. If you have owned and lived in your home in at least two of the last five years, single taxpayers can exclude $250,000 of capital gain on the sale of a principal residence and married taxpayers filing jointly can exclude $500,000.
- Select your retirement date carefully. If you can't save the amounts needed by your desired retirement date, consider postponing retirement. Working a few extra years gives you more time to accumulate your savings and delays when you start withdrawing from those savings. Or consider working after retirement at least part time. Even a modest amount of income after retirement can substantially reduce the amount needed for retirement.
- Stay focused on your goals. At this age, it's imperative that you maintain your commitment to save for retirement.
Joe is the Principal-in-Charge of the Meadville and Erie, Pennsylvania offices of HBK CPAs & Consultants and has been with the firm since 1986.
Joe has extensive experience in the areas of business valuation, succession planning, tax planning, business consulting and retirement planning. Joe provides accounting services to a wide range of industries, including, tool and die, manufacturing, construction, timber, farming and plastic injection molding.