Late to Investing? A Simple Catch-Up Plan That Actually Works

The best investing strategy, particularly for retirement, is to get started as early as you can and as consistently as you can. However, if you’re only starting later in life, how can you catch up?

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Financial experts offered a plan that actually works, if you follow it.

If someone is starting to save later in life, there are three things they can do immediately, according to Bruce Maginn, advisor at Solomon Financial.

1. Debt management: First, they should look to refinance their debt. This will help lower monthly payments and free-up cash flow.

2. Budget: Second, they must develop a budget. Understand what is coming in and going out each month. This can help eliminate wasteful spending as well.

3. Taxes: Finally, you’ll want to review your tax strategy. This may help ensure you’re minimizing what you owe and maximizing deductions and deferral.

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While getting some savings together at a late date is doable, it takes an attitude adjustment, according to Chad Cummings, CPA, an estate planning and tax attorney, and CEO of Cummings & Cummings Law.

“Most late-starting savers underestimate the scale of sacrifice required to avoid impoverishment.” For example, he pointed out that a 52-year-old client with nothing saved must invest approximately $2,650 per month at a 6% return to reach $750,000 by age 67.

“These figures presume uninterrupted employment, positive market performance and no catastrophic health events. Most will fall short on at least one,” he explained. “If those assumptions break, they will enter retirement with insufficient assets and no margin for error.”

When it comes to how much you should save per month to retire at age 67, you need to look at saving a percentage of your gross income, not dollar amounts, Maginn said. “The later you start saving in life, the higher the savings rate should be.”

He suggested that around age 45, you should aim to save roughly 20% of your gross income. If you’re starting at age 55, you should aim to save 33% of your gross income. “The general rule here is to be saving at least 25% of more of your gross income, no matter your age or current savings.”

Prioritizing your accounts is important when it comes to catching up on savings, Maginn said. First, you’ll want to contribute to your employer’s 401(k) plan, up to the match (if offered). If you can save more, even better. You should also consider allocating about one-third of your retirement contributions to non-qualified accounts.

However, when you’re behind on savings, you should focus on pretax retirement contributions. “This will help you reduce your current taxable income and improve your ability to save more,” Maginn said.

If you need to free up an extra $500 to $1,000 a month to invest, Maginn recommended adjusting your W-4 to eliminate over-withholding. “This will also eliminate large tax refunds that aren’t necessary,” he said.

Cummings suggested a more draconian strategy: “If you are behind, you need to cut the fantasy and go full wartime mode. That means canceling every nonessential subscription today … not next week, not next month.”

Other strategies include selling a second car if you can get $5,000 or more for it; downsizing your house now while rates are still tolerable; calling your insurance company and raising every deductible to the legal max and dumping whole-life policies.

Cummings even suggested picking up freelance gigs and funneling “every extra dollar into your 401(k) up to the match, then Roth IRA, then back to the 401(k).”

To control any overspending pay with only cash, Maginn said. “Spending cash in real-time feels more tangible and painful, which may naturally limit overspending.”

Utilizing credit cards can create delayed financial consequences that undermine budgeting efforts.

Finally, Cummings recommended getting the help of a financial professional.

“Oftentimes, by the time a client reaches our office, they have already made several irreversible mistakes by relying on legal ‘advice’ from ChatGPT or Reddit. At that point, we are in cleanup and salvage mode, and our options have narrowed considerably,” he said.

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