EXTENSION REPORT

Guidebook Available For Late Savers

            Do you wish that you could have saved more money for retirement when you were younger…but you didn’t?  The good news is that it’s not too late to take action to achieve financial security in later life.  If you are feeling that you are behind in preparing for retirement, don’t despair.  You can still take action to make up for lost time.

            Remember that your investment time horizon is the rest of your life…not your retirement date.  This means that, if you are 45 years old today and live to age 90, you have 45 years to grow your money through the magic of compound interest.  It is important, however, that your assets be invested aggressively enough to offset the effects of taxes and inflation.  This means considering some stock or growth mutual funds in your investment mix.

            Another piece of good news is that 2001 tax law changes provide increased opportunities for late savers to save for retirement.  If you are 50 and older, you can contribute additional catch-up amounts to both an Individual Retirement Account (IRA) and an employer tax-deferred savings plan (e.g., 401(k), 403(b), or Section 457 plan).

            These tax law changes are extremely valuable to late savers and may not last beyond 2010 if a “sunset” provision in the tax law takes effect.  Therefore, as they say in farming, it’s time to “make hay while the sun shines.”  According to research by the investment firm T.Rowe Price, 50-year old workers making the maximum contribution allowed each year to both an IRA and a tax-deferred plan, and earning an 8% average annual return, could amass $500,000 by age 65.

            So, if you’re beating yourself up about what you haven’t done to prepare for retirement, it’s time to stop and, instead, take action to create a bright future.  Today is the first day of the rest of your financial life and it is time to make the most of it.

            Compound interest is not retroactive.  In other words, it is impossible to earn interest that was never saved years before.  That’s the bad news. The good news is that there are over a dozen different ways for late savers to make up for lost time.  All of these methods basically fall into one of two basic strategies:

Take action before retirement to increase retirement savings

Take action after retirement to decrease the amount of savings required

Like many decisions in life, catch-up retirement planning requires trade-offs.  For example, spending less now in order to save more in a tax-deferred plan or delaying retirement in order to earn additional retirement benefits and/or save more money.  The popular phrase “there’s no such thing as a free lunch” is an appropriate description of the catch-up retirement planning process because all decisions have their costs.

Various retirement catch-up strategies can also be combined.  Three examples are: investing more in a 401(k) and moving to a less expensive location; moonlighting for additional income and delaying retirement; and investing more aggressively and “downsizing” to a smaller home.

The bottom line is that it’s not too late to get started.  Catch-up savers who are just beginning to plan for the future still have many options.  The Cooperative Extension System and the National Endowment For Financial Education (NEFE) have jointly produced the Guidebook to Help Late Savers Prepare For Retirement.  Over a dozen catch-up strategies are explained in this publication, along with tax law savings incentives and available resources.

This 52-page publication can be downloaded for free at .   Print copies are also available from the Alabama Cooperative Extension System, Mobile County office.  To obtain a copy of the Guidebook, send a check for $5.00 payable to:

Mobile County Urban Center

 Alabama Cooperative Extension System

 1070 Schillinger Road North

Mobile, AL 36608-5298

For additional information about the Guidebook to Help Late Savers Prepare For Retirement, call 251-574-8445 weekdays during business hours.

The information for this article is from the National Endowment For Financial Education (NEFE). Amanda C. Outlaw is a Regional Extension Agent serving Baldwin and Mobile counties through the Mobile County Urban Center.

Email address: aoutlaw@aces.edu
Phone: 937-7176 or 943-5611, 928-0860, ext. 2222

Issued in furtherance of Cooperative Extension work in agriculture and home economics, Acts of May 8 and June 30, 1914, and other related acts, in cooperation with the U.S. Department of Agriculture. The Alabama Cooperative Extension System (Alabama A&M University and Auburn University) offers educational programs, materials, and equal opportunity employment to all people without regard to race, color, national origin, religion, sex, age, veteran status, or disability.