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If you find yourself with nothing in the bank at 40, it’s not yet too late to start on a retirement fund. You just have to save twice or thrice as much as to make up for lost time, as well as make other investments to allow your money grow quickly.
by Jeanne Jampac, 03 January 2018
Investing in a brighter future means prioritizing your needs over your wants today so you can have both tomorrow.
Several studies and experts suggest that the ideal retirement savings you should have at 40 is twice the annual salary you get. While that does not sound implausible, some people at this age do find themselves with zero in the bank. Having nothing for retirement at a time that you should have been fully established financially is not ideal but it is not entirely hopeless either. This just means you have to come up with a plan to catch up and retire comfortably.
Create a Retirement Plan
The first step you have to make is to crunch some numbers to plan your retirement. This includes deciding at what age you want to retire, your life expectancy, the lifestyle you want to lead in retirement, and your current savings. Remember not to do this step in haste as it will serve as the foundation of your retirement plan.
65 is the compulsory retirement age in the Philippines, but you can opt to retire earlier. Assuming that you have not saved for a retirement plan at 40, just remember that the sooner you wish to retire, the higher your insurance premium should be to meet your financial target.
Assess Your Spending Habit and Priorities
Closing the gap between your current savings and retirement goals is going to be a challenge. Living lavishly may no longer be an option for you. In fact, living frugally may be the only way to meet your goals. This means you have to identify which expenses are needs and which ones are wants. Clearly, you have to let go of the wants—for the meantime—so you can reallot these expenses to your retirement savings.
Nevertheless, you have to be realistic about cutting down your expenses. That is, you do not have to necessarily eliminate the things you actually enjoy spending for. Case in point, you can brew your morning coffee instead of buying it from your favorite coffee shop. That way you can save money without reducing your quality of life.
Look for Other Sources of Income
Cutting down your expenses can go a long way but it may not be enough if we are talking about catching up with your retirement plan at 40. Instead of simply saving, you might need to actually earn more income. Fortunately, you do have a couple of options. One is to seek for a promotion at work, which pays higher and the other is to look for another source of income such as a part-time job or a business venture.
Make and Strengthen Investments
Assuming you plan to retire at 65, you will only have 25 years to strengthen your investments. This means you will have to invest aggressively while keeping things balanced. That is, you have to mix high-risk investments with safer ones such as bonds and certificates of deposit.
Likewise, you have to add as much extra money as possible to your retirement plan to make it grow more quickly. If any of your other investments pay dividends, reinvest this extra fund or add it to your retirement plan.