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Lynnley Browning: Catching up on retirement savings — why it's not hopeless

Lynnley Browning, on

Published in Home and Consumer News

Hindsight's 20/20, and if you're 50 or older and behind schedule on your retirement savings plan, you're probably discouraged and wishing you could start over.

Save $100 a week beginning at age 22 and you can end up with $2.18 million by age 72, as my colleague Carla Fried explains.

To be sure, youth + compounding = financial opportunity. But perhaps the next best combination is long life expectancy + compounding. Overlooked amid the sound advice to start saving early, that second equation underscores that there are many years likely ahead for you, and that's valuable time for additions to your nest egg to compound fabulously, just the way your earlier savings did. A 65-year-old male or female, for instance, has better than even odds to live past 85. You can check your longevity odds at the Society of Actuaries' Longevity IIlustrator.

Let's say you're 50, and despite working for 25 years, you've only socked away $500,000 of your $1 million goal. All is far from lost. If you earn a conservative 5% on those funds, without ever adding a dime to the original pile, you'll have just over $1 million at age 65.

Remember, you aren't gearing up to spend your entire nest egg the day you turn 65. Most of it will keep earning money for you over your 70s and beyond. So will the fresh money that you save beginning now, at age 50.

Let's say that older and wiser you re-fashions life so that you can do like that 22-year-old and put away $400 a month. Say it compounds at a conservative 5% each year. You don't touch that money for 30 years -- after all, in the early years of your retirement, you're living off the money you saved earlier.


That $400 a month becomes nearly $107,200 when you hit 65 and stop saving. But your nest egg still keeps compounding at 5%, and is nearly $335,000 or so by the time you're 80. Yes, you're doing all of your original and catch-up saving in a tax-deferred account like a 401(k).

And if you come into some extra cash, you can read up on the catch-up provisions of tax-deferred accounts.

Now you're hopefully feeling a bit more comfortable. Here are ways to get that $400 per month -- and sometimes much more -- out of a lifestyle that right now seems in-the-bank/out-the-door.

Downsize your home now, not after you retire.


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