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Is It Too Late to Start Funding Retirement?


"I'm a 32 yr old male who finally "woke up" and just recently starting contributing more to my 401k. I have been with the same company now for over decade and basically squandered my first ten years in contributing to my plan. My company contributed a minimum, small amount for me over that time period. So here I am, ten years down the drain.  What can I do if ANYTHING to make up for that lost time. I understand I could have had well over 100k by  now. Sadly I have no where that amount."

To begin with don’t beat yourself up over the lost opportunity.  Hindsight is always 20/20.  The important thing is that you have come to this realization with plenty of time to prepare for retirement.  Some people come to this realization much too late.  You are only 32.  I don’t like to sugar coat things so there really isn’t anything you can do to truly make up for the lost time.  Time is the number one driver behind investment growth because of the amazing power of compounding which is why it is so important to start young.  Having said that though, there are things you can start doing to get yourself back on track.

I’m going to begin by assuming that you are not living paycheck to paycheck.  I do not think that you would regret not contributing to a 401k if you were struggling to make ends meet.  I am also going to assume that you have some accumulated savings--just not in a 401k.  As I mentioned, you can never completely make up for the lost time, but you can aggressively start investing for retirement in an effort to catch up your contributions.

I want to emphasize that the first thing you need to do is make sure you have enough savings to account for an emergency fund of at least 3-6 months of expenses.  Once you have that available, let’s earmark the rest of your savings for investing for retirement.  I obviously do not have any knowledge of your other goals so that could affect these suggestions too.  The first thing you should do is make a contribution to a Roth IRA for 2013.  You can contribute up to $5500.

The second thing you should do is immediately begin contributing to your company 401k.  Determine how much you need to take home on a monthly basis and contribute everything you don’t need to your 401k.  If you are serious about catching up your contributions, you may even consider contributing more than this and have less in your paycheck than you need for monthly expenses.  Obviously you need to pay these expenses so use some of your savings to account for this shortcoming.  Thus you are effectively, taking your savings and getting it into your 401k.  Obviously you cannot continue this indefinitely, but it could be effective for a short period of time.  Just make sure to stop this strategy before you have to begin tapping into your emergency fund.  I want to also note that I am not recommending taking on debt to fund your 401k.

Another, perhaps unpopular way to attempt to catch up your contributions is to sell some of the “stuff” you bought while you were not contributing to your 401k.  Sure you probably won’t get what you paid for it, but you need to decide what is more important to you at this point.  From the sound of your question, you seem very motivated to try to make up for lost time, which is why I offer this suggestion.  I do not want to give the impression that I routinely recommend to clients to sell their “stuff”.  In some cases such as yours and clients with significant debt, it might make sense.

I hope these suggestions are helpful.  Some may find these a little unorthodox, but if done correctly, could help your situation.  Please don’t hesitate to call me if you have further questions about this.  As a fee only financial planner, you can be assured that I will represent your best interests.