Retirement Planning: Troubleshooting and Catching Up

As you build your retirement fund, you'll likely experience some bumps in the road along the way. Here's how to troubleshoot your way through those rough patches, including the ones that make you start later than you should.

One of the most common problems is an inability to make your monthly retirement contributions. Fortunately there are ways that you can tilt the odds in your favor.

Automate the Process

First of all, set up automatic payments from your checking account (your bank should be able to help you do this) into the investment account where you are building your retirement fund. This is commonly referred to as "paying yourself first." Once it's set up, each time you get your paycheck, your desired savings contribution will go right out to your investment account before you have a chance to spend it.

Additionally, if you participate in a 401(k) plan, try to make the maximum salary deferral contribution allowed. If your employer offers a matching contribution, at least try to contribute enough to ensure you receive the maximum matching contribution. Missing this is letting free money drift out of your hands.

Automatic savings will make it a lot easier to avoid spending your discretionary income on things you can realistically do without instead of investing in in your retirement. Try to have more than one savings vehicle. If serious financial problems crop up that require the use of your investment funds, you can usually access those that are deposited to an after-tax account without incurring penalties. The point of the automatic contribution is to avoid any instances of spending too much and missing out on your contributions unnecessarily.

If you do dig yourself into a deep hole of credit card debt, it's important you deal with the problem as quickly as possible. Create a feasible budget to pay down your debt and stick to it. Consider consolidating your debts into one account – this can lower your overall interest rate and help you pay off those debts quicker.

Other problems may crop up, but provided you're able to maintain your monthly contributions, you should be in good shape. If you are having prolonged difficulty following your plan, consider seeking the help of a financial planner.

What If I'm Late Getting Into the Game?

If you are beginning your retirement savings late in life, you will need to work hard to catch up. The first thing you can do is create a budget for your current expenses so that you can maximize monthly contributions to your retirement fund. With budgeting, a little goes a long way. If you track your expenses for a month you will likely find that skipping the occasional dinner out can save you hundreds of dollars, which can go a long way to boosting your retirement savings. The main goal is to ramp up your savings rate as much as possible.

You might also consider alternative ways to boost your financial situation. Second jobs are an option, but not a particularly pleasant one. If you own your own home, consider renting out the basement or taking on a roommate to lower your living expenses. Converting part of your residence into an income-generating asset can do wonders for your overall retirement plan.

Once again, part-time jobs during retirement can be a feasible way to catch up. If you're able to earn a modest income during your retirement years, your financial picture can change drastically – especially if you are an active type of person. You may actually prefer semi-employment to 100% leisure time.

Fund Retirement Through Your Home 

f you own a home, it could serve as one of the means of financing your retirement – either by selling it and moving to a smaller, less expensive home or by using a reverse mortgage. A reverse mortgage allows you to convert a portion of the equity in your home to tax-free income while retaining ownership (of the home). A reverse mortgage can be paid to you as a lump sum, as a line of credit and/or as fixed monthly payments. How to Choose a Reverse Mortgage Payment Plan will give you the details on your options.

If you decide to pursue a reverse mortgage, be sure to factor in the costs, which are similar to those that would usually apply when a house is being purchased. This includes origination fees and appraisal fees. (To read more on this, see Is a Reverse Mortgage Right for You? and The Reverse Mortgage: A Retirement Tool.)