A few years ago, I had a client who felt way behind on their retirement planning, and it was stressing them out. They were worried about scaling back their lifestyle, but after we sat down and went through their situation, we realized they weren’t as far behind as they thought. It was all about taking a few key steps to turn things around. First, we focused on paying off their high-interest debt and maxed out their retirement contributions, especially taking advantage of those catch-up options. We also automated their savings to make things easier. The results? Over time, they saw consistent progress, and soon, they were back on track, and their dream of a comfortable retirement became achievable again. My advice: start by clarifying your goals and where you stand today. Then, look for small but impactful strategies that can make a difference. It’s not about giving up on your dreams but finding the path that gets you there step by step.
Financial professionals, what's one approach you've taken to help a client with a late start on retirement planning catch up? The most important thing I can help a client with if they are late to saving for retirement is to coach them on the mindset that "by default, my future raises and promotions go all towards saving." The biggest sin of omission for most people in financial planning is "lifestyle creep" - allowing your lifestyle and spending to increase proportionately with your income. The best way to boost savings is straight to a 401(k) from a paycheck deduction. It takes the behavior out of the process. I will also encourage clients to see if their enrollment system has an "auto-increase" feature, where they can automatically bump up their contribution rate each year by a specified amount.
This is a challenging equation to solve, but it starts with understanding two key factors. First, recognize and accept your current situation. There's no benefit in dwelling on frustration or regret over where your financial planning stands today. Second, take action. Look for opportunities to save more and take advantage of options like 'catch-up contributions' through your company retirement plan or IRA. While your reality might mean that retirement isn't exactly what you envisioned, it doesn't mean you can't still have a fulfilling life during your golden years. You can find purpose and joy in your retirement years by contributing to your community, spending quality time with your family, and pursuing activities that bring you meaning.
The key to supporting clients with a late start is to first help them understand where they are currently cash flow wise followed by their "sleep at night" liquid cash position. We explore finding a balance between enjoying life now but understanding if they'd like a similar lifestyle in retirement carving out a sustainable planned savings amount based on their remaining working years will help them achieve that goal. Visual tools are helpful. Many clients have the resources but appreciate the expertise around which buckets to focus on and why. We often walk them through the interest rates of various debt versus what their investment accounts are or could be earning and the all-powerful time value of money! In addition, we look at their tax brackets and help them understand pre- and post-tax savings plan options today and into the future. The funds to save for retirement could come from (excess) debt payments on low interest debt or utilizing cash to pay off high interest rate debt. Monthly cash flow is then shifted to rebuilding emergency saving and retirement.
For women nearing retirement who feel they've gotten a late start on planning, one effective approach I've used is to implement an aggressive catch-up strategy focused on maximizing tax-advantaged accounts. First, we take full advantage of catch-up contributions in 401(k)s and IRAs. For those 50 and older, you can contribute an extra $7,500 to your 401(k) in 2024, bringing the total limit to $30,500. For IRAs, you can add an extra $1,000, for a total of $8,000. Next, we look at potentially downsizing or relocating to reduce living expenses and free up more money for savings. This can be an emotional decision, but it often provides a significant boost to retirement funds. We also explore options for delaying retirement by a few years if possible. This serves the dual purpose of allowing more time to save and increasing future Social Security benefits. Lastly, we focus on creating additional income streams, such as part-time work or monetizing hobbies, to supplement savings without compromising quality of life. Remember, it's never too late to improve your financial future. With the right strategy and commitment, you can make significant progress in a short time.
One approach I've taken to help a client with a late start on retirement planning is the "Second Best Time is Today" strategy. The saying goes, "The best time to start was yesterday, but that makes the second best time today." This approach focuses on taking immediate and decisive action to make up for lost time. 1. Define Clear Goals We begin by discussing the client's retirement goals—whether it’s maintaining a certain lifestyle, relocating, or leaving a legacy. Understanding their vision helps us create a targeted financial plan. 2. Create a Customized Financial Plan With clear goals in mind, we develop a financial plan that outlines exactly how much they’ll need to save and invest to achieve their retirement objectives. This plan becomes our roadmap, guiding every financial decision from this point forward. 3. Assess Savings Viability Next, we analyze their current financial situation to determine how much they can realistically save each month. This often involves finding ways to increase income, reduce unnecessary expenses, or both. We also explore options like maximizing contributions to retirement accounts, especially if they’re eligible for catch-up contributions. 4. Implement a Catch-Up Strategy We prioritize high-impact actions, such as automating savings and investment contributions, to ensure they’re consistently building their retirement nest egg. We also consider more aggressive investment options, balanced with their risk tolerance, to help their savings grow faster. 5. Regular Progress Reviews Finally, we schedule regular check-ins to review progress and make adjustments as needed. This ongoing support ensures that the plan remains aligned with their goals and that they stay on track despite starting later than ideal. By focusing on what can be done today, we turn what might seem like a late start into a proactive and empowering journey toward a secure retirement.
Founder and CERTIFIED FINANCIAL PLANNER® professional at Your Story Financial, LLC
Answered a year ago
I like to share with people in this situation that all hope is not lost. From this point forward it’s important to make the most of the time you have left. You must track your progress consistently. I like to help my clients understand where they are today. Then they will know what they need to do to meet their goals. Once you have the proper mindset and understand that there’s still hope. Tracking your savings, spending, and investing is essential. I empower them with tools to track their progress and provide progress reports quarterly. This allows us to collaboratively monitor progress and celebrate small wins along the way.
The first step is to get the client to accept that they are behind and set realistic expectations. That may include the need to work to age 70 to maximize social security benefits. This approach also provides additional time for assets to compound. Taking advantage of catch up provisions to save as much as is affordable, is another key. I also strongly encourage my clients to focus on eliminating as much consumer debt as possible before retirement. The income need in retirement can be greatly reduced with little or no debt.
As a Financial Planner, one of the key strategies I've used to help clients with a late start on retirement planning is taking a gradual approach. It's crucial to start somewhere and start small, especially if you've never saved before. By beginning with a manageable savings amount, you can build the habit and gradually increase your contributions over time. I always encourage clients to start now, with an amount they're confident they can commit to, rather than waiting for the 'perfect moment', which likely may never come. Additionally, creating and regularly reviewing a budget is essential. Understanding your cash flow and prioritizing certain expenses allows you to become laser-focused to allocating as much as possible toward retirement savings while maintaining a sustainable lifestyle.
Clients come to us asking about this all the time. We start by helping them gain clarity and set expectations on their ability to draw from their savings and investment portfolios sustainably and also the other income sources they should consider. This helps make the necessary adjustments and prioritizes actions that are in their control, instead of having to take on more investment risk to try and catch up blindly. We want our clients to focus on their ability to save, budgeting in retirement, and being more intentional with their balance sheet holistically. We also want to help clients understand and establish their emergency cash buffer and necessary insurance so they're not set back even further from all of life's uncertainties. Once we've set a strategy in place, it's about monitoring and executing on the day to day steps for clients so they realize their financial potential to retire comfortably.
When working with clients who are starting their retirement planning late, one effective approach I've taken involves a combination of aggressive savings strategies and leveraging technology for optimization. For example, one client came to me in their mid-50s with limited retirement savings and a pressing need to catch up. Here's how we tackled the situation: Firstly, we conducted a thorough financial assessment to understand their current financial situation, including income, expenses, and existing savings. With this information, we developed a detailed, accelerated savings plan. This plan included increasing their monthly contributions to retirement accounts and exploring additional income streams, such as part-time work or investments that could provide extra cash flow. Next, we utilized advanced financial planning tools and software to model various scenarios and project their retirement savings growth. By incorporating AI-driven insights and simulations, we were able to identify the most effective investment strategies and savings rates required to meet their retirement goals. These tools helped in visualizing the impact of different strategies, which was crucial for making informed decisions. We also reviewed and adjusted their investment portfolio to ensure it was aligned with their new savings strategy. This involved reallocating assets to take advantage of higher returns while managing risk appropriately. Technology played a key role here, as AI algorithms provided real-time data and predictive analytics to optimize their investment choices. To maintain motivation and track progress, we set up regular review meetings and used financial tracking apps to monitor their savings and investments. These tools provided ongoing feedback and allowed for timely adjustments to their plan as needed. This approach not only helped the client create a realistic path to catch up on their retirement savings but also demonstrated how leveraging technology can significantly enhance financial planning. By integrating these advanced tools and strategies, we were able to give the client a clearer roadmap and greater confidence in their ability to achieve their retirement goals.