If you're behind in saving for your retirement, it isn't too late. Here are some common-sense tips to help you meet your goals by improving your personal balance sheet and investing the difference in IRAs, your 401(k), and elsewhere.

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Did you start saving for retirement with your first babysitting or lawn mowing job? Me, neither, though it's nice to think of compound interest helping us accumulate wealth over 60 years. No matter when you began your path to building a nest egg, you probably wish you’d started earlier or saved more. Building wealth, a secure retirement, or even early retirement is actually based on three simple principles: earn more, spend less and invest the difference.

Earn More to Build Retirement Accounts

For good return, manage your work life. Keep current with trends and skills, actively network and evaluate your current position for salary increases. It’s sad but true that you can often improve your salary the most by changing jobs.

Too many employees find that it’s up or out in many jobs after 50. Many clients tell me they plan never to retire, but that may not be entirely your choice. Most people who’ve been laid off do eventually find jobs, but it can take longer (a year or more), put a wrench in savings and pay less. Have a Plan B: Plan to retire early. You can always keep working, but you won’t have to.

We’re all weary of being told to have a second gig or a part-time retirement job to generate additional income. We wish this weren’t the current reality, but even a short-term infusion of cash (say, a holiday job or on-call skill), if saved and invested, can boost retirement income. Be careful to select jobs that generate more than they cost.

A divorce or death of a spouse can really alter retirement plans. These life-changing events can make workforce re-entry imperative. No one’s life works out exactly as they’d planned, but it can require a change in outlook to view the necessity as opportunity. If you haven’t worked for a while, you may never have the highest total lifetime earnings, but you may also be surprised at the possibilities of converting your skills into paying employment, perhaps with an investment in additional short-term training.

Invest time learning how to maximize credit card rewards. Besides cash-back cards, you can score good deals on travel and bonuses for specific spending. Learning can take some time, but the hourly rate for time invested is usually high.

Spend Less to Reduce Your Cost of Living

Try living on your proposed retirement budget. Recently, FIRE (Financial Independence, Retire Early) has generated a lot of interest, but anyone who’s planning retirement at any age should think about how much they need when they hit their retirement ages and whether their portfolio and any guaranteed income will provide it.

If you must cut your spending, do it and start saving more! As long as you're currently setting aside some income  — if not reaching contribution limits — for retirement accounts, you should be able to live on less than your current salary. You won’t be saving or paying FICA taxes, and some work-related expenses may disappear.

If you’re spending everything you earn, will a 4% per year withdrawal from investments plus Social Security, give you the same income level? In fact, is the 4% rate the right one for you? This is covered in Myths of Retirement Planning. If the withdrawals and Social Security won't be enough, you must seek ways to streamline spending. Start with these black holes:

  • Housing. An expensive house has higher taxes, more maintenance and more money spent on furniture, lawn care and house cleaning. If you’re far from retirement, think carefully about upgrading to your maximum ability to borrow on a mortgage. Resist buying much bigger living space just before the kids go to college. As you coast into retirement, think about accessibility, whether you can leave the place for those longer vacations you’ve dreamed of and whether you could be investing that equity in income-producing investments. You can have great net worth, but if it’s all in your home you won’t have much to live on. The less put into housing, the more you’ll have available for everything else.
  • Eating out and travel. These are the two biggest drains we all enjoy. Cut back rather than cut out. Lean toward less expensive options or cut down on the frequency. Spending on these two categories varies widely among my clients, but I don’t see a direct correlation between money spent and pleasure derived.
  • Excess possessions. Sell them! If you don’t know how, corral your child, teenage relative or stay-at-home parent and give them a cut of the profits. Donating? figure out the tax savings you'll derive and stash it in your savings.
  • Escalating monthly services. Monitor automatic payments. Do you really use the health club? Have you requoted your insurance coverages in the last two years? Negotiated your cable bill? Researched the latest cell phone plan deals? Updating can be worth hundreds.
  • Bankrolling the kids. Parents can find it hard to kick the habit. Respect them enough to believe they can make it on their own.

Invest the Difference to Help Secure Retirement

Take advantage of available help such as membership in BetterInvesting — try out a free 90-day membership. Even if you don’t belong to a club, the resources, virtual meetings, seminars, and stock analysis tools can easily save you from the cost of one foolish investing mistake.

If you’re over 50, take advantage of the opportunity to shelter more savings via provisions for catch-up contributions in retirement accounts: an extra $6,000 in workplace accounts and $1,000 in IRAs.

Taxes may be the topic that cures your insomnia, but all investing must consider it. Use every opportunity to shelter earnings, so you’ll have more invested that isn’t reduced by taxes. Individual stocks can be more tax-efficient than mutual funds: You can select for or against dividend-payers and choose when to realize lower-taxed capital gains. Mutual funds pay out on their schedule, not yours, so you should look at their tax efficiency when selecting for specific accounts.

Although many people might want to form a core portfolio using mutual funds, a sufficient number of stocks, provided you have the time and knowledge to evaluate and monitor them, can prove rewarding. Although you're unlikely to lose every red cent in a mutual fund, you're also highly unlikely to double or triple your money. Either scenario can happen with individual stocks, but using BetterInvesting principles and analysis can improve your chances of real gain.

Danielle Schultz, CFP, is a fee-only financial planner and principal of Haven Financial Solutions in Evanston, Illinois.

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