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Investment Tips for Late StartersSubmitted by Paul B. Miller, CFP on September 9th, 2015
There's no set age at which Americans should start investing. For most people, it's a matter of having the financial stability to cover important obligations such as rent, car payments, and grocery bills, with just enough left over after spending their fun money to set some aside for retirement. With that said, the conventional wisdom suggests that Americans start saving for retirement as early in their career as possible. The earlier you start saving, the more time your money has to collect compound growth.
If you haven't started saving yet, there are steps you can take to compensate for a late start. The following tips will help you get your financial goals on track, even if you're a little late to the party.
Imagine a football team spotting the opposition a 28-0 halftime lead. You'd be pretty upset if your favorite team did this, and then came out from halftime with a defensive mindset and a run-first mentality. The same holds true with investing for your retirement. You need to be willing to be aggressive when you first start so that you can make up for the lost time.
On top of that, if you are starting late but still in the early stages of your career, you have time to take risks at first and make up for any losses that may occur in the long run. Put aside as much money as you can comfortably afford to live without in the short term, so you can live comfortably in the long term.
Practice Risk Tolerance
Building off that previous point, if you're getting a late start, you need to focus your investing in appropriate higher risk investment vehicles. When you start investing at a young age, you can afford to leave your money in less aggressive funds that promise slow, but steady returns. When you start your investment portfolio later, you need to pursue higher risk options that offer greater payouts, but greater risk of loss as well. Careful monitoring will be necessary to still accomplish your goals.
Reduce Expenses and/or Increase Your Income
The two easiest paths to a greater nest egg in the future are less expenses and greater income today. When it comes to expenses, try to wean yourself off of the luxuries you enjoy now that you can live without for a few years. Cut the cord with cable, eat out less, and vacation every other year as opposed to annually. Remember though, saving for your future shouldn't mean living a miserable life today.
As for your income, look for ways to boost the amount of money hitting your bank account each month. A part-time job, though annoying to think of at first, can bring in as much as $9,000 extra each year if you worked just 12 more hours each week. If you want to make this task more enjoyable, try turning a hobby (such as tutoring, photography or landscaping) into a small side gig.
Take Advantage of Tax Incentives
Investing your money into different accounts and meeting the maximums offers tax savings in the present, as well as in the future. Aim to invest the maximum amount of money possible in your Traditional or Roth IRA accounts, as well as any 401k holdings you have. For those who don't know, as of 2014, you can invest a maximum of $5,500 into IRAs on an annual basis, and $17,500 into 401k accounts. Strive to meet those maximums whenever possible.
Maximize Social Security Benefits
Take any steps you can to help maximize the Social Security benefits you'll receive in the future. There are many tips to help achieve this goal, but each comes with different outcomes. If you've been dating that special someone for years, but haven't tied the knot, do so before claiming any Social Security benefits. After a year of marriage, you're allowed to collect a full spousal benefit on your significant other's Social Security.
You can also consider delaying collection of your Social Security benefits. You not only receive a higher percentage with each check in doing so, you spend more time in the workforce contributing to your own Social Security benefits in the future.
Consider Delaying Retirement
It's the moment you've been waiting decades for, retirement. However, just because you can retire, that doesn't mean you should. If you want to keep working for a few years and don't draw from your nest egg, it can continue to grow. For example, an individual with $240,000 at age 65 who works for three more years will have $300,000 courtesy of an annual average growth of 8%. A strong stock market is good reason to continue working as it can help push your funds even higher.
Remember, just because you waited a little longer to start saving doesn't mean it's impossible retire comfortably. You can still enjoy a wonderful retirement, you may just have to be more diligent and follow different rules from those who started saving at a young age. Contact Indian River Financial Group today for more information and help with your retirement.