No one wants to wake up one day and feel like the years have passed without them noticing. But do you know what’s worse? Waking up and realizing that you’ve fallen behind in your retirement planning.
Unfortunately, this is the situation that many Americans find themselves in. According to research conducted by the National Institute on Retirement Security, the median retirement account balance in 2021 is just $134,500 for families nearing retirement. Meanwhile, 67% of Americans believe there is a retirement crisis in the country and feel concerned about achieving a financially secure retirement.
If you find yourself in this position, it’s time to stop worrying and do something about it.
Get a Plan
What is the biggest difference between people who feel confident about their retirement and those who lack confidence? According to the 2015 EBRI report, the biggest difference is participating in an employer-sponsored retirement plan, like a 401(k) plan.
This makes sense. When you are in a workplace plan, you save automatically, with money taken out of every paycheck. If you have a plan available to you and you’re not enrolled, contact your benefits manager today.
If you do not have a plan available, you can set one up yourself using an IRA or Roth IRA, and arrange for money to be electronically transferred from your checking account to your retirement savings each month. If you are under the age of 50, contributing $500 a month will get you to the full contribution of $6,000 in an IRA by the end of the year. If you are over 50, your number is $583.33 (because the max is $7,000, including the $1,000 catch-up contribution).
And if you’re not sure where to invest that money? Look for a target-date retirement fund that will choose an appropriate mix of investments based on your age and estimated retirement date.
Work Longer
In addition to automatic saving, the most you can do at this point is increase the period you work.
Let’s say you’re 55 and targeting retirement at 66. If you start saving now, you could double your contributions to 20% of your income for the next seven years — but that won’t have the same impact as working three more years until age 65, as Sweeney says, or eight more years until age 70. Not only are those three or eight extra years of income you can contribute to your retirement fund, but they also mean fewer years in retirement that you’ll need income.
Another advantage of waiting until age 70 to retire? Bigger Social Security checks. For each year you delay starting your Social Security benefits from age 62 to 70, there’s an 8% increase in the amount you receive. The increase accumulates from age 62 to 70 in your monthly checks.
Downsize
By the time you retire, you want to be able to replace most of your fixed expenses with expected income. This income comes from Social Security, any pensions you may have, and the ability to withdraw about 4% from your retirement savings annually. (If you keep your withdrawals around 4%, your savings should last for 30 years, which is enough for most people.) But what if you look at your numbers and find that you’re still falling short? Then it’s time to downsize your lifestyle.
This might mean moving to a smaller home, which means saving on rent or mortgage payments. Utility and maintenance bills may also decrease. This could mean getting rid of a car and using public transportation instead. It might mean reducing from two vacations a year to one.
Do not
Don’t wait until you retire to take these steps. Reducing the size of your life while working will allow you to set aside more money for retirement.
Make Additional Contributions
People in their fifties have the capacity to make additional contributions to retirement plans each year. We noted the additional contribution of $1,000 that you can contribute to an IRA. But you can also contribute an additional $6,500 to your 401(k) plan (as of 2021), and if you are 55 or older, you can also contribute an additional $1,000 to your Health Savings Account or HSA.
However, to find that extra money, you will need to find room in your budget. And yes, if you are not living on a budget, it’s time to start.
Set aside time in your calendar, pour a glass of wine, and take a deep breath. Then take a serious look at your income and expenses (free apps like Mint can help you track the latter). Look at each expense category and ask yourself where you can cut back to free up more money to save for tomorrow. For every dollar you find, schedule an automatic transfer so that the money is actually moved from your spending account to your savings account. That way, you’ll be confident that it will actually happen.
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Sources:
– National Institute on Retirement Security. “Retirement Insecurity 2021: Americans’ Views of Retirement,” Pages 4, 6.
– Internal Revenue Service. “Retirement Topics – IRA Contribution Limits.”
– Social Security Administration. “Early or Late Retirement?”
– Internal Revenue Service. “Health Savings Accounts and Other Tax-Favored Health Plans,” Page 6.
– Internal Revenue Service. “Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits.”
Source: https://www.thebalancemoney.com/retirement-saving-catch-up-plan-4101196
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