Your nest egg probably isn't as large as you would like it to be. This could be for a number of reasons including a layoff, the stock market slump, or simply because you only recently started investing for retirement. But it’s not too late to build a comfortable nest egg. Here are six ways to catch up on your retirement savings.
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Eliminate debt. Your first priority should be to eliminate any debt you may have. Compound interest can do amazing things when it is working for you, but it can be devastating when it is working against you. Eliminating debt is a guaranteed return on your investment and will work toward increasing your cash flow. Paying down debt will help your money go further both now and in retirement.
Increase your savings rate. Aim to increase your retirement savings rate. A good way to do this is to pay yourself first. Increasing automatic contributions to your 401(k) and maxing out your IRA are great ways to boost your retirement savings and take advantage of tax breaks. If you are over age 50 you can contribute an additional $5,000 to your 401(k) and an extra $1,000 to an IRA.
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Put off retirement. It's hard to make your nest egg last when you start using it at an early age. Delaying retirement benefits you in two ways: It gives you more time to increase your retirement savings and shortens the number of years your retirement savings must last. Putting off retirement increases the likelihood that your nest egg will last throughout your retirement. But you don't need to work until you drop. Even a few years of additional income can make a substantial difference in your retirement preparation.
Delay Social Security benefits. Signing up for Social Security too early can decrease the annual payout you receive. You can begin taking a reduced Social Security benefit at age 62. But you can increase the size of your checks by waiting until you are eligible to receive your full entitlement between ages 65 and age 67. Here is Social Security's full retirement age chart to help you decide the best age to begin receiving benefits.
Downsize. Downsizing your expenses will help your money go further. There are hundreds of ways you can downsize including refinancing your mortgage to capture a lower mortgage rate, selling a large, expensive home to buy a smaller home in a less expensive neighborhood, and moving to a state that doesn't have an income tax and offers a lower cost of living. Consider selling a second vehicle and having a yard sale to reduce clutter and generate income.
Flexibility is key. Your nest egg may not be as large as you want it to be right now, but that doesn't mean it has to stay that way. Employing some or all of these tips can help you gain substantial ground in your retirement preparation. And these are not the only things you can do. Take a few minutes to brainstorm and look at your options and you will probably be able to come up with several ways to increase your retirement nest egg.