If you’re 45 or 55 and just starting to think about retirement planning, don’t worry. You’re not the only one starting late, and it’s not impossible. While you may have started later and don’t have as much time as someone who started at 25, often people in this age group have higher incomes and may no longer need to support children.
Late starters can still accumulate a substantial amount of wealth if they follow the right methods. The following eight steps will teach you how to quickly catch up and secure your financial future.
The first step is to set clear financial goals for yourself. Most financial experts recommend needing about 70%-80% of your current income in retirement. However, this is just a starting point. Your actual needs will depend on factors such as whether you have a mortgage, medical expenses, and how you plan to spend your retirement.
List your current annual expenses and project them into the future. Don’t forget to factor in inflation for the next 20 to 30 years.
It’s time to do some serious number crunching. Add up all your retirement savings so far to see how big the gap is:
– Balances in 401(k) or 403(b) accounts
– Individual Retirement Accounts (IRAs)
– Other investment accounts
– Estimated Social Security benefits
These are your current retirement assets. Remain objective and avoid getting emotional about them; they are just numbers.
Subtract the amount you already have from the amount you need, and that’s your retirement savings gap.
If you need $2 million at 45 but have only saved $200,000, the gap is $1.8 million. Sounds daunting? It’s not that scary. You still have time and the ability to earn money.
Your age determines your strategy. The choices are different for someone starting at age 45 versus age 55. But with focus and effort, both can accumulate significant wealth.
Now that you know your goal, it’s time to find the money to achieve it. You must save aggressively, just as you would rely entirely on savings in the future.
Forget the traditional 10%-15% savings advice. Late starters often need to save 30%-50% of their income to catch up. It may seem impossible, but when you realize you’re spending money on things that don’t truly make you happier, you will find it entirely feasible. The good news is that you have more control over your spending than you think.
According to the U.S. Bureau of Labor Statistics, housing typically consumes about 30% of most people’s income. This is an area ripe for optimization. Consider downsizing to a smaller house or moving to a lower-cost area. You might find that you don’t need the extra bedroom or prestigious address. Some people even rent out rooms in their current homes to generate extra income without moving.
Moving can also change the game. Moving from San Francisco to Austin could cut your housing expenses in half.
Car loans are also wealth killers. If you have a car loan, consider selling your current car and buying a reliable used one with cash. A 5-year-old Honda Civic is just as reliable for commuting as a brand-new SUV but costs much less.
This is not about becoming a hermit. It’s about spending money on what truly matters to you while ruthlessly cutting back in other areas. For example, you might enjoy dining out but have no interest in cable TV. Keep the dining out but cancel expensive TV channel subscriptions.
At some point, you may need to earn more money to reach your retirement goals faster because cutting expenses can only go so far. If you started saving for retirement later, you must make the most of your existing resources. Many people’s incomes stagnate because they never actively seek raises or promotions. You can research salaries in your field using websites like Glassdoor or PayScale.
When requesting a raise, back it up with solid data. Have you taken on new responsibilities or exceeded goals? Timing is crucial; it’s best to ask during performance evaluations or after completing important projects.
Benefits are also worth pursuing. If your boss can’t offer a raise but can provide more paid time off – take it. They may also consider offering more flexible work arrangements or better health insurance.
You can develop a whole new set of skills to significantly increase your income potential. Data analysis, project management, and digital marketing often bring higher salaries. By obtaining professional certifications, you can boost your income in a matter of months rather than years, such as Google Analytics certification in the marketing field or PMP certification in project management.
If you have decades of experience, leverage that advantage. Try consulting in your field or teaching your expertise to others. You can also earn extra income through platforms like Upwork for freelance or gig work. Experiment with digital products like online courses or eBooks; once set up, they can provide a continuous stream of income. Start trying things while you still have your main job, see what works, and expand on the successful products.
The government offers some favorable policies for older individuals regarding retirement savings, so be sure to take advantage.
Once you turn 50, you can make additional contributions beyond the standard limits. As of 2024, individuals can contribute an additional $7,500 to a 401(k) and an extra $1,000 to an Individual Retirement Account (IRA).
This isn’t pocket change. If you’re in a higher tax bracket, that extra $7,500 in your 401(k) can immediately save you $1,800 in taxes. Over 15 years, this could add over $112,000 to your retirement savings (not including actual account growth).
If you’re 50 or older, the contribution limits are as follows:
– 401(k): Total of $30,000 ($22,500 + $7,500 catch-up contribution)
– Traditional/Roth IRAs: Total of $8,000 ($7,000 + $1,000 catch-up contribution)
– Health Savings Account (HSA): Total of $5,550 ($4,550 + $1,000 catch-up contribution)
Choose either a traditional or Roth IRA account – start with one if you’re falling behind. A traditional account can immediately provide tax deductions, while a Roth account allows for tax-free withdrawals in the future.
If you have a Health Savings Account, it’s a hidden gem – triple tax advantages. Don’t overthink it; stuff money as much as possible into an account the IRS can’t touch.
The traditional investment advice is to subtract your age from 100 to determine the percentage of your portfolio in stocks. But for late starters, this old rule must be discarded.
Traditionally, at age 50, you would allocate 50% to stocks and 50% to bonds. This is quite conservative and may not achieve the returns you expect. If you’re looking to quickly build retirement savings, even at 50 or 55, you may need to allocate 70%-80% of investments in stocks.
The key is having a sufficient time horizon. If you plan to work until age 65 and could live until 85, at 50, you still have 35 years for wealth accumulation. That’s a long enough time to weather market fluctuations.
However, honestly assess your risk tolerance. Consider if you’d feel comfortable sleeping at night if your investment portfolio dropped 30% in a bad year. Being aggressive doesn’t mean being reckless.
You don’t need to pick individual stocks or chase hot trends. Keep it simple and focus on low-cost index funds that track the overall market performance.
International diversification helps achieve faster growth. Consider allocating 20%-30% of investments to developed international markets and another 10% to emerging markets. This way, you spread risk across different economies and currencies.
Here’s a possible asset allocation example:
– 60% in U.S. total stock market index
– 25% in developed international markets
– 10% in emerging markets
– 5% in Real Estate Investment Trusts (REITs) or real estate
For those who started saving for retirement later, the biggest risk isn’t market fluctuations but not having enough time for compound interest to work. Avoid trying to time the market or panic selling during price drops. Rebalance annually but don’t obsess over daily numbers. Keep investing consistently regardless of market changes. Dollar Cost Averaging (DCA) can be highly effective when you’re investing larger sums.
Debt is the enemy of wealth accumulation, but not all debts need to be prioritized with the same urgency, especially when you’re starting later and racing against time.
If your debt has a higher interest rate than the returns you earn from investing, prioritize debt repayment. Credit card interest rates at 18%-24%? Pay them off immediately. No investment strategy can outperform those rates in the long run.
But what about a 4% mortgage or a 6% student loan? If you can earn 8%-10% returns in the market long term, it may make more sense to invest the money instead, especially when your retirement savings are falling behind.
Prioritizing repaying high-interest debt is called the “avalanche method.” Rank all your debts by interest rate, prioritize paying off the highest rate, and only make minimum payments on the others.
Debt consolidation might be beneficial if you can get a lower interest rate. Personal loans or credit card balance transfers could offer better terms than your current credit card conditions. Just don’t use debt consolidation as an excuse to accumulate more debt.
The biggest mistake is paying off debt then accumulating new debt. If necessary, cut up credit cards. Set up auto-payments for all recurring bills to avoid late fees.
Consider the psychological impact as well. Some people need to experience the feeling of being debt-free before focusing on investing. Others can do both at the same time.
Relying on a single source of income in retirement is very risky, so build multiple income streams now to create more options for the future.
Invest in dividend-paying stocks of companies with a history of long-term and increasing dividends. Real Estate Investment Trusts (REITs) are another way to earn income without being a landlord.
If you have the funds and the right mindset, owning rental properties can also be successful. Start small with investments like duplexes or single-family homes. Remember, being a landlord requires effort, especially if you manage them yourself.
Here are some options for passive income:
– Dividend growth stocks and Exchange-Traded Funds (ETFs)
– Real Estate Investment Trusts (REITs) and real estate crowdfunding
– Peer-to-Peer lending platforms
– High-yield savings accounts and Certificates of Deposit (CDs)
You don’t need to replace your salary income overnight. The goal is to build a sustainable income source that continues whether you are working or not.
If you started saving for retirement later, don’t let a single setback erase all your efforts.
Medical expenses will be one of your biggest costs in retirement. A retired couple typically spends around $300,000 on medical expenses. If you started late and have a shorter saving period, this money could consume a significant portion of your retirement savings.
Long-term care is the real “killer.” Nursing homes cost over $100,000 per year. Just a few years of care can deplete savings accumulated over decades. Long-term care insurance is a good solution, but beware that premiums can be very high if purchased too late.
If you can open a Health Savings Account (HSA), it’s a secret weapon. Contribute money to this tax-advantaged account, watch it grow tax-free, and use it tax-free for medical expenses. After age 65, you can even use it for any purpose, subject only to regular income tax like a typical retirement account.
Additionally, ensure you complete essential estate planning. This includes a will, power of attorney, and healthcare directives. Don’t let legal fees and will certification fees deplete your estate before it’s inherited by your family.
Late starters on retirement savings have advantages that young savers don’t. You are likely in your peak earning years, have fewer financial burdens, and perhaps more wisdom to avoid major mistakes. A tight timeline can make you more focused and help you avoid many common procrastinations seen in early starters.
If you diligently follow the plan, you can achieve more with half the effort. Higher savings rates, strategic career choices, and proactive investing can compress decades of wealth accumulation into a few years – and you can start now.
The article was originally published on the Due blog website and is authorized for English re-publication by Epoch Times: “8 Steps to Build Wealth Fast When You Got a Late Start on Retirement.” Epoch Times © 2025. The article represents the author’s views and opinions, provided for general informational purposes only, with no recommendation or solicitation. Epoch Times does not offer investment, tax, legal, financial planning, real estate planning, or other personal finance advice. Epoch Times does not guarantee the accuracy or timeliness of the article.