Getting a Late Start Saving For Retirement? Follow These 6 Steps and You Will Be Alright

There are a lot of people out there that are in their late 40's who are now just experiencing some fear about retirement. There are some immediate steps you can take to correct your situation.

Let us assume you have no retirement savings or very little but you do own your home and at this point you have a small balance left on the mortgage. As tough as your situation may seem, there are definite actions you can take to make up for lost time. But first you have to genuinely commit to spend less and save more, and stick to that commitment whatever it takes.

In today's uncertain economy, it may be more difficult to achieve financial security, but that very uncertainty makes it all the more important to do so. The good news is that the things you can do right now have much more to do with your own prudence than with the volatile markets. Most importantly, be positive and stay focused on your goal. Here are six things I suggest you do right now:

1. Create a budget

Take a long hard look at what you earn and what you spend, using this simple formula:

- Divide expenses into two categories: non discretionary (the must-haves) and discretionary (the extras). Put debt reduction and savings at the top of your non discretionary expense list.

- Track your spending for 30 days, comparing your projections with what you actually spend.

With this realistic picture of your spending pattern, you can find ways to cut back focusing, of course, on your discretionary items. Could you eat out less? Take public transportation instead of paying for gas and parking? Negotiate lower rates with your phone and cable providers or your credit card company? These small economies can add up.

2. Contribute to your 401(k) and IRA

With the unpredictability of recent markets, you might question whether investing in a 401(k) or IRA still makes sense. I think it does and here's why.

If you're working and your employer provides a 401 (k) with a company match, that can mean extra money in your savings. Contribute at least enough to get the full match, more if you can. To accelerate your retirement savings each year after you turn 50, you can make an additional catch-up contribution. For tax-year 2009, the catch-up is $5,500.

You could also contribute to a traditional IRA or Roth IRA, if you are eligible, and again make catch-up contributions once you are age 50.

Even in volatile times, these retirement accounts offer two significant benefits:

- Your money can compound tax-deferred, leading to potentially faster growth.

- Because you're investing consistently in both up and down markets, you're taking advantage of dollar-cost averaging, which means you are buying more when prices are low and less when prices are high.

With tax-advantaged accounts, time is always a factor, meaning the earlier you start, the better.

3. Get out of debt

If you are carrying nondeductible consumer debt, such as credit card balances, try to eliminate those quickly. If you are being charged 15% interest and only paying the minimum, those interest charges are actually increasing your debt. Paying down those cards is like giving yourself that extra 15%.You also may be able to consolidate balances on credit cards and other loans into lower-cost, potentially tax-deductible forms of debt.

On the other hand, mortgage debt can offer some tax benefits as long as you have a low-interest, low-risk mortgage.

4. Save, save, save

There is no way around it, you have to save as much as you can. Consider putting all or part of an annual bonus toward retirement. When you get a raise, do not increase your spending; save that extra money. Here is some food for thought: Saving an extra $5,000 per year for the next 15 years, with an 8% annual compounded return, would mean an additional $150,000 when you are ready to retire.

5. Rethink your options

There is no formula for the perfect retirement. Here are some things to consider:

Set-up additional income streams. This is at the heart of the advice I give to all my clients, young or old. There are so many opportunities now for operating a second or third income generating business right from your home. Many of these opportunities take up very little time and once you have them up and running they practically take care of themselves.

Spend less. Having been a financial adviser for over 20 years I suggest that you plan for as much income in retirement as when you were working. However, if you have eliminated debt, you might be able to get by with less.

Postpone retirement. This would allow you to build a bigger retirement portfolio and shorten the time you will rely on savings. You can also increase your , potential Social Security benefit by waiting to receive payments (up to age 70).

Work part-time. Many retirees are including some type of work in their retirement plans for extra income as well as social interaction and a sense of purpose. Again, when it comes to this I highly suggest you set-up a micro business that you control yourself.

Tap into your home equity. Since you own your home, you could consider a reverse mortgage once you turn age 62 (but watch out for fees and other requirements). Or you could scale down to a smaller home and add the difference to your retirement nest egg.

6. Develop an investment plan you can stick with

If you have not created a sound investment plan, now is the time. Asset allocation is the key to long-term investing in both up and down markets. A qualified financial adviser can help you decide on an asset allocation plan that is right for you, based on your savings goals, your feelings about risk and the time you have to invest.

As you can see, there is a lot you can do to catch up. But at the end of the day, it comes down to old-fashioned financial discipline.

The best advice I can give to my new clients that are in their late 40's or early 50's and really have failed to plan for retirement is to take advantage of all the current day opportunities to create additional income. The Internet has opened a whole new world of opportunities for people young or old to create additional streams of income without giving up every spare moment you have. There are a lot people that will feed you a lot of hype about making $5,000 in your first week, these are the people you want to shut right down. There are proven methods that anyone can implement but you need to find someone that is going to give you an honest step by step system that you can follow right to completion. The opportunities are available, but it is up to you to do some homework to avoid wasting precious time and money chasing a dead end dream.