Saving for retirement can be a tricky business, especially if you haven’t worked any jobs that offer employee pension schemes as a staff benefit. This is less of a concern when you’re still in your youth. It’s easy to categorize retirement savings as one of those things that you’ll get around to eventually. Maybe once your earning X amount per year or you’ve finally bought a property and settled down.
For many people, that “eventually” never comes. It’s so easy to get carried away with the trials and tribulations of normal living that many people never actually sit down and workout how they’re going to finance their retirement. By the time they reach middle-age, their sixties suddenly seem much closer, often leading to a growing concern over lack of retirement plans.
For those that find themselves in this situation and decide it’s time to do something about it, there are many tools and techniques that can be used to develop an effective and plausible retirement plan. From eliminating debt to using a mortgage calculator to get the most out of your mortgage payments, there are numerous methods available to help you start saving for retirement.
Here are six of the top things you can do if you’re in your 40’s with no retirement savings and you’re looking to make a change.
1. Stay Calm
Firstly, stay calm! You still have plenty of time and there are a wealth of techniques and methods to help you improve your personal finance and develop a healthy fund for retirement. Plus, you’re far from the only one in this situation. Many people end up in this predicament and it’s completely conquerable. By recognizing it now, you’ve made the first and most critical step towards rectifying it. Some less fortunate folks fail to make this realization until it’s too late, at which point it becomes extremely challenging to rectify and put a viable plan in place.
So, stay calm. Read these points and begin to put them into practice. Taking this first step will enable you to put a plan in place, which in turn will help to calm your nerves and concerns.
2. Focus on Eliminating Debt
Many personal finance experts offer this key piece of advice as to the first step in gaining a handle on your finances and beginning to save for retirement. The basic mechanism of “compound interest”, which is hailed for its benefits in the world of investment have the same negative effect on debt –the more debt you have, and the longer you keep it, the more you’ll have to pay off in the long run.
Eliminating debt is, therefore, one of the most important steps in positioning yourself to begin saving for retirement. For many, the main source of debt is property mortgage. It may feel like saving money in your bank account or ISA would be more beneficial for your retirement fund than increasing your monthly mortgage payments, and it will definitely give you more readily observable results, but this is often not the case.
Increasing your mortgage payments and achieving full property ownership earlier than planned can be one of the most powerful ways of freeing up cash in the long term. The best tool for assessing your current situation and exploring other possibilities is a mortgage calculator. This type of tool allows you to gain perspective on your existing mortgage and identify any potential improvements.
3. Learn to Live with Less
Another key principle in personal finance is to learn to live with less or live within your means. The reason that this technique is so powerful is that its often easier for people to eliminate excessive spending than to increase their income. When analyzing their personal finance, many people find that they’re spending excessive amounts in at least a couple of key areas. However, you must be willing to assess your spending habits and there may be some sacrifices required.
A phrase called “hedonistic adaptation” describes the psychological mechanism by which humans quickly become accustomed to their material environment and start to want more. This is often represented in the clichéd anecdotes of people who buy a car and instantly want one that’s faster, or buy a house and want one that’s bigger, or get a promotion and quickly have zero money left at the end of each month.
Knowing this psychological trick can work wonders for your personal finance by allowing you to question your purchases and spending. Do you really need that new outfit, or will you wear it once and then want something new?
Does that kitchen appliance really need replacing, or could you make a few adjustments to have it working as well as you need? Does that room in your house really need redecorating, or could you patch it up with some DIY and save a large sum? Understanding hedonistic adaptation helps you to realize that you’re not missing out by learning to live with less.
4. Free Up Cash for More Effective Use
It’s not uncommon for people to have large sums of cash tied up in expensive property, including cars, houses, or jewelry. It’s not always possible or desirable to sell such items. Sometimes a piece of jewelry is a family heirloom, or an expensive house is the inheritance for a son or daughter.
However, such expensive items are often unnecessary and excessive, especially if you’re looking to improve your financial situation. In this case, it’s prudent to replace or sell such items and free up some much-needed cash for investments or paying off debt. In the case of a house, you can use a mortgage calculator to work out how much cash you could free up by downsizing or adjusting your mortgage strategy.
This can sometimes seem painful at the time, but quickly becomes something of the past. This is hedonistic adaptation at play again,by helping you become accustomed to living with less.
5. Maximize Your Retirement Contributions
If you’re in a job that offers some form of pension scheme but you’ve never used it, now might be the time. Many employers offer significant contributions that can bump up the value of your pension fund. Some even offer a generous “matched” contribution, where they pay in the same amount that you do.
It’s easy to see why such schemes are worthwhile because you’re effectively getting free money from your employer, just for working for them. Opportunities like this should not be overlooked if you’re beginning to save for your retirement.
6. Explore Part-Time Work Options
For many people, retirement means switching directly from permanent, full-time work to pension-funded, full-time leisure. However, this is not the only way to transition. Another option is for retirees to find part-time work to support the transition, often in a field or role they’ve always wanted to try. Sometimes, this new part-time activity becomes an enjoyable part of retirement that retirees engage in for the fun and challenge, rather than solely for the money.
Rethinking your retirement plans and exploring options for full-time work can lead to the discovery of a hobby or activity that you could make a generous part-time income from, all while doing something you enjoy. This hobby may be something you were planning on doing in retirement anyway, so the additional income is a great side benefit that will likely allow you to retire a little earlier.
It is never too late to rescue your retirement savings. Staying calm, tackling any debt and earning some extra money will go a long way to setting yourself up for retirement, regardless of your age.