Catch Up On Your Retirement Savings

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It’s been one financial blow after another for many Americans over the past few years, and you may find your retirement savings have veered off track. While this can be discouraging, there are ways to catch up.

Investments are down. Home equity has shrunk. Paychecks have diminished—if you’re lucky enough to still have one. You may have experienced any or all of these situations over the past few years. But there are ways to get your retirement savings back on track—no matter what your age.

Save more.

This can be easier said than done, and the older you are the less time your money will be able to take advantage of compounding. But every dollar counts. And if you’re 50 or older, you can take advantage of “catch-up” contributions for 2010 which enables you to contribute an extra $5,500 to your 401k and an extra $1,000 to your IRA. (Check with your tax or financial advisor on any income limits that may apply to these contributions.)

Reduce your debt.

The general rule of thumb is to eliminate your debt by the time you retire, but this won’t be a possibility for some. But you can reduce your debt. Start by paying off any debt that offers no tax advantages, like credit card debt and home equity lines of credit. And don’t enter into any new debt, such as loans to pay for your child’s college education. (Instead, open a 529 college savings plan, but be aware of how much you can truly contribute.)

Grow your money safely.

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If you’re feeling the stress of being behind on your retirement savings, it’s tempting to invest in high-yield stocks (which are often also high-risk) to try to catch up. If you’re young, you can probably get away with this. But the older you get, the more you need to move your investments to safer funds, such as bonds and cash. It’s generally agreed that by age 50, your investments should consist of no more than 70 percents stocks; by age 70, no more than 50 percent.

Prioritize your retirement goals.

You may no longer be able to afford that retirement home on the coast of Italy, but that doesn’t mean you can’t still have a fulfilling retirement. Determine what is most important to you when you retire—the home on the hills, the ability to travel or take classes, being near family—and what you may be able to live without.

Figure out what is realistic and what you could do to achieve those goals. Is your home a little too large now that the family has moved out? Consider downsizing. Don’t need that second car if there’s no job to go to? Sell it and stash away the savings from not having to pay insurance and maintenance every year. No place to wear that expensive jewelry? Sell it. Take a hard look at your lifestyle to determine what you can change to meet your retirement goals.

Retire later.

These may be the two most dreaded words in the English language, but retiring later can not only give you extra time to save for retirement, but will boost the amount of social security you receive. Your social security benefit will increase based on the number of months you do not receive benefits between your full retirement age and age 70. (Click here to calculate your social security benefit.)

Consider semi-retirement.

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If the idea of delaying your retirement puts you in a cold sweat, consider easing into it. Do some consulting or freelance work or take on a part-time job. Be aware, however, that working in retirement can reduce your monthly social security benefits. (Click here to learn how this might affect you.)

Whatever your age and whatever your financial situation, the only way to catch up on your retirement savings is to start the process now, save however and wherever you can and take advantage of the retirement investment options available to you.

This article contains general information. Individual financial situations are unique; please, consult your financial advisor or tax attorney before utilizing any of the information contained in this article.

Source: CNNMoney.com, Forbes.com, Yahoo! Finance
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