Any number of events can throw our financial lives off course (business failure, lawsuit, death of partner, illness, divorce, etc.). That’s not even considering the people who simply don’t start saving until their 50s. No matter what happened, if you need to play catch up with your savings plan, here are a few ideas for getting back on track.
A Mistake I’ve Observed
“I plan to work until I’m dead.” Ever heard this line? While we have a fair amount of control with our spending habits, we are not in total control of the income we earn for the duration of our lives. Even if you love your work now you might not feel the same way in a few years, and circumstances might arise that make your work impossible (termination, industry trends, health issues, etc.). No matter what happens, we still need to plan for our nest egg to replace our income for the final 20-30 years of life.
What You Can Do
Now is the time to get clear and serious about how much you need to save annually. You can no longer just follow rules of thumb around saving for the future. Do you have to stay in an expensive city while you work? Could you plan to relocate to a city in your 60s where the cost of living might be greatly reduced? A short move from Los Angeles to Palm Springs, for example, could reduce overall costs by more than 20%. [i]
Adults in their 40s and 50s (and even 60s and 70s) typically have larger disposable incomes than they did in their 30s, so saving 20% or 30% of our annual income now is more feasible than it might have been back then. Most importantly, save on autopilot by automating your monthly savings amount. Don’t just wait until you feel that your bank account has too much cash in it. Revisit this each year so that you can adjust it upwards as your income (hopefully) also rises.
Purchase liability insurance to protect your current assets in the event of a lawsuit. If you’re self-employed, you need business liability insurance. For personal assets, you’ll need home, automobile, and umbrella coverage. You should also try to obtain a disability insurance policy, so that you can insure your income in the event of a serious accident or injury. Consult your financial planner if you have any questions on the types of policies you need based on your situation.