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Commentary: What to do if you started saving for retirement later in life

It's human nature to wonder what if. What if you had decided to take that job in Miami back in 1975? What if you had majored in English instead of business? As you get older and you start looking forward to retirement, some of those what if momen...

It's human nature to wonder what if.

What if you had decided to take that job in Miami back in 1975? What if you had majored in English instead of business?

As you get older and you start looking forward to retirement, some of those what if moments become more practical: What if you had allocated 9 percent of your income to your 401k instead of 5 percent? What if you had started saving when you were 25, instead of when you were 35?

The answers can be shocking. For example, let's say your goal is to accumulate $1 million for retirement and you'll have a hypothetical 8 percent annual rate of return. If you have 30 years to invest, you'd need to save about $8,800 every year to reach that goal. If you only have five years to invest, however, you'd need to sock away approximately $170,500 each year to surpass that $1 million mark. That's a staggering sum, and it's probably not feasible for most. This is a hypothetical example and is not representative of any specific investment. Your results may vary.

So, what should you do if you find yourself on the latter half of that example?

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Get back on track

First, map out how many years you think you'll spend in retirement - and be realistic.

It's very common for people to spend close to three decades in retirement. Once you've established your time horizon, work out how much money you'll need per year to comfortably fund your lifestyle. Multiply your time horizon by the yearly income need, and you'll have a specific savings goal that seeks to cover you throughout retirement. Working with a financial adviser can help you create a plan to help you pursue that goal.

Be sure to factor in your values when considering your yearly income need. If adventure isn't a value of yours, for example, you likely won't need to factor in much of a travel budget. On the other hand, if family is a value, you may want to account for items like reunions and birthday gifts for the grandkids.

Additionally, ask yourself how much longer you are willing (and able) to work. Working even just a couple of additional years can have a significant impact on your savings, since you stand to benefit from the power of compounding. You also can capitalize on having employer-sponsored health care and a reliable stream of income for day-to-day expenses. If meaningful work is one of your values and you enjoy your job, this may not seem like much of a sacrifice. Maybe you can cut back on hours but retain your benefits, or telecommute to save on gas and other expenses.

Take action

With your savings goal in mind, make a budget for discretionary spending and stick to it. This is not the time to be accruing additional credit card bills or other kinds of inefficient debt. Remember your core values and let these guide your buying decisions.

If you can afford to do so, max out your contributions to your 401k and IRA. In 2014, the contributions limits are, respectively, $17,500 and $5,500. If you're age 50 or over, you can also use the "catch-up" provisions for these savings tools. You can put an additional $5,500 in your 401k and an additional $1,000 in your IRA.

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Some people assume that as they get older they'll need to increase their bond allocation to protect their savings. The reality is that an overly conservative portfolio likely won't keep up with inflation (in fact, it will likely drag far behind). Based on historical data, a higher allocation to stocks (equities) can deliver higher returns. There aren't any guarantees when it comes to investing, but a professional adviser should be able to help you find the asset allocation that helps you work toward achieving your desired lifestyle in retirement - and isn't so risky that you can't sleep at night.

The bottom line

If you got a late start saving for retirement, don't give up hope. Every little bit helps, and depending on your timeline, you may still have several years to benefit from compound earnings.

The most important thing you can do? Make a plan. A little certainty goes a long way when it comes to your money. If your plan is specific and in alignment with your values, it'll be that much easier to stick to it. After all, "what ifs" can be fun to ponder, but not when your retirement is on the line.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

By Bruce Helmer and Peg Webb, Financial Advisors at Wealth Enhancement Group and co-

hosts of "Your Money" on KLKS 100.1 FM on Sunday mornings. Email Bruce and Peg at yourmoney@wealthenhancement.com . Securities offered through LPL Financial, member

FINRA/SIPC.

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