Planning for retirement can be overwhelming if you don’t know where to start. You can feel even more stressed about retirement planning if you’ve neglected it while putting money away for your children’s education.
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Dave Ramsey recently had a caller on his popular show ask how to save for retirement even though she had no funds set aside. This caller had spent her savings on putting her kids through college after the death of her husband. Ramsey and his co-host were able to help her figure out how to start planning for retirement despite starting from scratch.
How can you start saving for retirement if you have spent your savings on your kids’ education?
Also see what to do with your college savings if your kid doesn’t use it.
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Check Your Financial Health
Before you can invest in your retirement, Ramsey wants listeners to know which stage they’re at with the baby steps for building wealth.
Here are a few steps to take first:
Save $1,000 as a starter emergency fund to prepare for unexpected expenses.
Pay off all of your non-mortgage debt.
Save three to six months’ worth of living expenses in your emergency fund.
If you’ve followed these baby steps and already paid off your mortgage, you can start to save for retirement aggressively. Even if you haven’t started saving for retirement, there’s nothing wrong with starting right now.
See: 9 Frugal Habits Dave Ramsey Swears By
Start Planning for Retirement Immediately
Ramsey believes that retirement planning is about determining how much money you’ll need to save to live a comfortable life when you leave the workforce and then work on creating a path to get there.
The first step of retirement planning involves setting goals. This is where personal finance gets personal. You’ll want to figure out how much money you’ll need in retirement to live your desired lifestyle. Because we all have unique goals, there’s no one-size-fits-all solution here.
Ramsey gives a few examples on his website of how you can catch up if you start saving for retirement later in life. Here are a few common scenarios:
If you’re 40 years old with an annual income of $55,000, you can set aside 15% of your gross income, which would be $688 monthly. Even if you start with zero, you could still crack the million-dollar level at 65.
If you’re 45 and decide to invest for retirement from scratch, you should aim to set aside 15% of your gross income. The good news is that your income could be higher at this age. So, if you’re earning about $97,000 annually, 15% would be $14,550.
Depending on your investment returns, you can still reach a million dollars in your investment accounts, even if you start later in life.
This leads us to the most important point.
Set Aside 15% for Retirement
The common theme with all the retirement advice here is that Ramsey constantly reminds readers that they should set aside 15% of their income to plan for their golden years. The good news is that if you’re in your 40s or 50s, the chances are that your income has increased, so putting aside 15% of it will mean that you’re setting aside more funds for retirement.
Invest In Your Roth IRA
Ramsey is a fan of company retirement plans if they offer to match, but the team loves to promote Roth IRAs and Roth 401(k)s because the money invested in these accounts grows tax free and you won’t have to worry about taxes when you access the funds in retirement.
This is why it’s critical you properly invest your retirement funds in the right accounts and the right funds. Ramsey is also a proponent of growth stock mutual funds invested in tax-advantaged retirement accounts.
Ramsey believes you can regain plenty of lost ground between your Roth IRA and 401(k) even if you start planning for retirement after 40. It’s important that you work with a financial advisor to run some calculations about how much money you can put toward a Roth IRA.
Work With an Investment Professional
Ramsey believes in working with an investment professional, because investing for your future shouldn’t be an individual activity. You should find a financial advisor you trust who specializes in retirement planning to help you determine which steps to take.
You don’t want to feel lost in your journey — you’re never alone. If you’re starting later in life, then you may also want to look for ways to get more aggressive with how much you’re setting aside for the future.
Remember That It’s Never Too Late
Ramsey wants followers to know that it’s never too late to start planning for retirement. Even if you spent all of your savings on helping your children with college, it doesn’t mean you can’t switch gears now. He has even suggested that, in the worst-case scenario, you consider pushing retirement back a few years to 70 if you’re not in excellent financial condition.
Final Thought
Ramsey urges listeners to stop delaying action in all areas of personal finance, but he especially encourages everyone to take retirement seriously. If you’re just getting started with retirement planning after 40, the good news is that it’s not too late to catch up. It’s crucial that you remain patient as slow and steady always wins the race when it comes to building wealth.
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This article originally appeared on GOBankingRates.com: Dave Ramsey: Here’s What To Do If You Spent Your Savings on Your Kids’ College
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