09/17/2014 12:40 EDT | Updated 06/16/2017 00:54 EDT

40 Year-Old Retirement Fund Virgin? Time to Get in on the Action

person hold an empty wallet
person hold an empty wallet

For many of the hundreds of thousands of post-secondary students off to university or college, the beginning of September meant settling in to dorm rooms, easing into lecture room chairs and procrastinating on preparing for mid-term papers and assignments. This is a pattern that may repeat itself throughout their academic careers and beyond. Let's face it: many people work better on a deadline.

This is the same mindset that leads perfectly reasonable adults to the conclusion that saving for retirement can wait until tomorrow, until they get a raise or have taken the next vacation, or until they turn 30, 35 or 40. I'll save once I pay off a few bills. Retirement's too far off. Saving for retirement is fundamentally different. If you are approaching 40 and have procrastinated, it's time for a gut check.

Save up, save big

Understand that you have a fiscal emergency on your hands. While the ship is not yet sinking, it is taking on water, which means you have some holes to plug. A reasonable first step is to resolve to commit as large a portion of your income as possible to savings and to invest wisely. Sophisticated investment managers understand that they cannot control how the market will perform, but they can control how much they will invest.

You may feel you do not have the necessary financial skills to prepare for retirement. Unless you're a financial planner, that's nothing to be ashamed of. Find a person who can not only help you determine appropriate and achievable long-term financial goals, but who can help you develop the discipline to meet them. This will help keep you on track over the long run.

Remember that you are not alone. There are many people who for various reasons have not saved enough for retirement -- or who have saved nothing at all. Look for other people in your situation or people that have been where you are and try and learn the strategies or financial decisions they made to accelerate their savings and pre-retirement wealth.

Understand what you are saving and investing for

There's little value in a map if you haven't picked your destination. Take some time to figure out what retirement will look like for you and what it will cost. Be realistic. If, for example, you enjoy going to the theatre, baseball games or camping trips, assume you will want to do these things -- and perhaps even more often -- in retirement. Once you have determined how much you need, you will have a clearer picture on how much you need to save.

Build an investment portfolio that will meet your financial objectives. You will need to determine the risks you want to take with your investments. The closer you are to retirement, the fewer risks you can afford. If you find that your anticipated needs in retirement will be significantly higher than what your investment strategy will achieve, you have three options: panic, adjust your expectation or adjust your strategy.

Under no circumstance pick the first option. At best, it can cause anxiety and at worst, can lead you to taking unnecessary risks and possibly losing everything. That leaves you the second option, the third or a mix of the two. Whatever the case may be, make sure to follow best practices in investment management and construct a well-diversified portfolio of securities that can be effective in reaching your goal.

Take stock of your lifestyle

Consider a thorough review of your spending habits -- big and small. While you will have a fair number of fixed expenses including mortgage payments or rent as well as insurance, car expenses and groceries, what do you spend on the daily coffee run, on lunches out and impulse purchases? Not sure? Calculate the last five, 10 or 20 transactions you have made under $20. If you can't remember, have a look through your bank or credit card statement -- then think carefully about every expenditure and whether it is necessary, can be reduced or eliminated to increase savings.

Make a budget. Begin with the amount you have determined you need to save within a given week or month in order to comfortably retire. Add your monthly expenses, and then build in some room for unexpected expenses. From there, you can design a lifestyle that you can reasonably maintain. Use unexpected income like bonuses or tax refunds to help supplement your monthly savings. This process may also lead you to apply a bit more scrutiny when it comes time to purchase a new vehicle, renew a mortgage or review your insurance policies.

Create fiscal discipline

There are a number of simple and distinct tools that you can use to manage your money. Foremost, you must understand your spending patterns -- in other words, what's going where. This will allow you to preemptively transfer money into an account not linked to your everyday purchases. Even so, you will need the discipline not to spend this money frivolously. Ensure you have a reserve fund in place to hedge against unexpected expenses such as a costly home repair, medical emergency or providing care for an elderly parent.

A major component of being disciplined with your finances is taking an interest in learning more about the tools and strategies that can lead you to reach your savings objectives. The principles and best practices of retirement planning are straightforward and with with the right guidance, can be less onerous to follow. "The Essentials of a More Secure retirement" -- produced by CFA Institute -- has excellent all-encompassing guidance for those seeking to implement a thoughtful plan. It provides best practices in both personal finance and investment management and ways to apply them in order to reach your retirement goals.