When it comes to saving for retirement, it is never too early to start. However, the last decade or so before you reach retirement age can be especially critical.
Once a person turns 50, they should be mounting a full-court press, becoming even more aggressive about their saving and debt-reduction efforts. By that age, you probably have a pretty good idea of when (or if) you want to retire, and, more importantly, still have some time to make any necessary adjustments if you find that you are off track.
Start making catch-up contributions
The IRS allows catch-up contributions in the tax code for a reason. It is because Americans' natural inclination is to consume rather than to save. So, obviously, the federal government fully recognizes that we must be poked and prodded and rewarded to make it happen.
If you discover that you are behind on your savings goals and need to put more money away, the conventional recommendations are to maximize annual contributions to your workplace retirement account and contribute to a traditional or Roth IRA. However, you must be willing to do all of those things — and then some.
Don't give in to lifestyle creep
Workers who contribute the most to their 401(k)s often spend less on housing and transportation than their peers, according to a study by the Employee Benefit Research Institute. If you earn a decent income but have trouble saving, the culprits are likely the roof over your head and the car(s) in your driveway. Those big-ticket purchases tend to be public enemies No. 1 and 2, respectively, when it comes to identifying the root causes of lifestyle creep – that's when our incomes rise and our consumption of luxury food and services does so, too.
It is somewhere between ages 45 and 50 when most workers reach the top end of their earnings potential. In the years that follow, their incomes will still continue to rise with inflation and the cost of living, but they are far less likely to make the exponential leaps in pay that they achieved in their 20s and 30s.
Given that, working professionals in their 50s have to pay very close attention to their spending, as some tend to succumb to "I deserve" or "I've always wanted" syndrome just as they're hitting that earnings peak. That's the tendency of people to buy the things they've always wanted but couldn't afford up until now, like the big house and furniture to fill it, a fancy car, designer clothing, and other luxuries to feel good.
Reduce your expenses and pay off debts
While catching up on saving is not impossible, it will certainly take proper planning and a willingness to save and invest. There are a few options to turbocharge your retirement savings that will have a bigger impact than paying off all outstanding debts.
Since a staple of retirement income planning is identifying the expenses that will stick with you even after you have stopped actively earning an income, it is important to note that eliminating expenses also reduces the amount of income you will need to replace on an annual basis, which in turn reduces the size of the nest egg you will need to have saved prior to retirement.
Paying off debt and avoiding any new debt may sound very simple. However, any aggressive debt payment plan generally includes foregoing those same luxuries mentioned before. It can be very challenging, once one reaches the pinnacle of their professional success, not to splurge on the house they've always wanted with the four-car garage, his and hers closets, and Olympic-sized swimming pool. Or the German luxury vehicle with the seats that feel as if they were hand-stitched specifically with you in mind.
However, it is safe to assume that retirement is a far more enjoyable time in one's life when the fear of outliving your assets isn't so prevalent. After all, there is no law that prohibits you from renting such a home or vehicle every now and then just to scratch that itch and then return to your regularly scheduled (already paid for) programming.
This article originally appeared on Business Insider.
