Bringing up a family is one of the most rewarding things that you will ever do, but it can be an expensive business. According to a report from the US Department of Agriculture, it will cost a staggering $241,000 for the average family to raise a child born in 2012. Worse still, that doesn’t include the cost of sending them to college. Because of this, many US couples find themselves with little or no savings for retirement when their children leave home.
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If you are in this position, don’t despair. There are lots of things you can do to get yourself back on track for a comfortable retirement – and the sooner that you start, the more you will be able to accomplish. While it’s always best to start saving at an early age, making up those lost years isn’t as difficult as you might think.
To start with, you need to take advantage of the various government breaks that you get as an older saver. For instance, once you are over 50, the IRS ups its limits on how much you can save for retirement. In 2012, if you were a young worker, you could only put $16,500 into your 401K each year, but if you were over 50, you could contribute $22,000. That extra $5,500 could add nearly $115,000 to your retirement nest egg even if you only earn 4% a year on the balance.
Of course, in order to save money like this, you need to have money left over from your paycheck each month. Part of this is about setting a budget and sticking to it, but there are also ways to eliminate unnecessary expenses that don’t contribute to the quality of your life. For example, your top priority should be to pay off high-interest debts – such as credit cards – before you even start saving. Think about how happy you would be to earn a tax-free 19.9% per year on an investment. That is what you are doing when you pay off a credit card. Even if you have to take out a bank loan at a lower rate to do this, you will still end up far ahead in the long-term. For example, if you have $20,000 in credit card debt and just keep up with the minimum payments, you will end up losing $60,000 by the time you retire – and you will still have the debt.
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Once you have used all of your tax breaks and have your debts under control, it is time to start saving. The secret of this is to put aside a fixed amount as soon as you get your paycheck, rather than waiting until you have spent it all. Talk to your bank or financial adviser about what savings options you have – for example, here are three savings plans that work. Make sure that you maximize the returns on your savings, but be careful to minimize the risk. While younger savers and investors can afford to take losses, you need to make sure that the money will still be there when it comes time for you to retire.