Not everyone has the privilege to start saving for retirement in their 20s. Various circumstances, such as limited income or medical issues, can mean some people will only start  to save and invest significant amounts in their 40s. However, it is not impossible to build a comfortable retirement, just because you had a late start.

You Are Not Alone

Starting late to save for retirement is very common. There are many people who can only start to think about retirement in their 40s, or even in their 50s. Various obstacles may have prevented them from starting earlier.

But starting late to save for your retirement is better than not starting at all. There are financial plans and products that may be able to help build a retirement fund for those who start late. The most important thing is to start as soon as possible.

Here are the key steps to take:

1) Save as much as possible to make up for the time lost

Based on your risk profile, take up the appropriate savings or investment plan and save as much as you can. This is to make up for the time you have lost and to accumulate as fast as possible to meet your retirement goal.

Another important point will be that of staying within your risk profile when investing. Do not take on risks that are above your risk appetite hoping to get higher returns. This is because plans with higher returns usually comes with higher risks. And you may lose your capital if the market goes against you.

2) Look beyond budgeting alone

Of course, the next question is “how can I save or contribute more to my retirement planning?”

The most obvious way would be to spend less. However, there is an limit to how much you can budget your spending. At some point, you will be reduced to your basic needs (food, water, and shelter), and cannot cut costs any further. There may be, however, no theoretical limit to how much more you can earn.

To illustrate this point:

Let’s say you want to contribute an extra $500 a month to your retirement fund. What happens if you try to reduce your expenses?

You could spend $20 less on transport every week, by walking under the hot sun everywhere. You could skip your favourite plate of chicken rice once a week, to save $3.50. You could avoid going out with friends, thus saving another $50 a week. We could go and on, but the quality of your lifestyle deteriorates significantly.

Instead of going through all that, you can try to grow your income. You could do someone’s accounts, help someone to polish up their sales presentations slides, help to design a website, and so forth, depending on the skills and knowledge you have. You can try to make an extra $500 through these efforts, than through making painful sacrifices whichyou are most likely to give up before the year is up.

So, for a start, adopt a mentality where your first reaction is no longer just to cut costs. When you need to get the money, focus on who will pay you to do something. You only use budgeting when there absolutely is no other way to make a few hundred extra dollars.

By the way, even a small amount like $500 makes a big difference to your retirement fund. $500 a month is $6,000 a year. Compounded at five per cent over 20 years, the the total amount is $207,550. For more on getting five per cent per annum, speak to one of our expert retirement planners at RAY ALLIANCE Financial Advisers.

3) Start working out the possibilities of downsizing, and be realistic

If you have a home, you may have to seriously consider the possibilities of downsizing. This might mean moving from a private property to a HDB unit, or moving from a five-room flat to a smaller one.

The sooner you prepare yourself mentally, and the sooner you work out the finances involved, the smoother the transition will be. Remember that, in your twilight years, a larger house can be difficult to maintain. Not only does it take more cleaning, you will pay higher conservancy charges, which can eat into your retirement fund.

Note that it is inadvisable to sell off your home and plan to move in with your children. Things may not work out, so always plan to have enough for your own home even if you downsize.

4) Revise your insurance plans, or get one if you don’t already have one

If you have an insurance plan, it’s time to review it and see if it will suffice. If you haven’t had a chance to get one, now is the time to seriously look into it. You cannot properly plan retirement goals without insurance – all it takes is a single accident, critical illness or crisis to derail your plan.

Visit FinAlly and let our online wizard work out the best assets for you. You’ll also save money this way, as you’ll receive a 50 per cent rebate on agent commissions. It’s more money for a comfortable retirement.

5) Consolidate your debts

If you have any outstanding debts – particularly credit card debts – take immediate steps to pay them down. It is impossible to out-invest credit card debt (the interest rate is around 24 per cent per annum), so it has to be paid down as quickly as possible.

Remember you can use a lower interest rate loan to pay off your more expensive ones. For example, you could take a fixed instalment loan at lower interest rates, and then use the money to pay off your credit card debt.

Nothing kills your retirement fund faster than higher interest loans, so focus on paying them off and closing your credit lines.

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