Is retirement quickly approaching? Worried you’re behind on your savings? You’re not alone. According to research from the Insured Retirement Institute, almost 40 percent of baby boomers have no retirement savings. Nearly 70 percent have no pension or defined benefit plan. And almost 60 percent have less than $250,000 in retirement savings.1
Saving for retirement is difficult for many Americans. You likely have other financial challenges that seem more urgent. You may be paying for your child’s education, trying to pay down your debt or saving for more immediate financial goals. It’s easy to allocate money toward those objectives instead of retirement.
If you’re age 50 or older, however, the next few years may represent your last opportunity to accumulate retirement assets. Now is the time to take action and overcome your retirement savings gap. Below are three tips to help you get started. These strategies could help you catch up on your savings and enjoy a long, comfortable retirement.
Wait to file for Social Security.
You can file for Social Security benefits as early as age 62, and it may be tempting to file at that time. After all, you’ve paid into the Social Security program your entire career. You may be ready to file your claim and start receiving benefits.
However, there are good reasons to delay your filing as long as possible. One of the biggest factors in determining your benefit amount is your age at the time you file. If you file at your full retirement age (FRA), which is between 66 and 67 for most people, you’ll get your full benefit amount. If you file before your FRA, you could see your benefit permanently reduced as much as 25 percent.2
You can even delay your filing past your FRA to increase your benefit. Social Security offers an 8 percent benefit credit for each year you delay your filing past your FRA, up to age 70. For example, if your FRA is 66 and you wait until age 70 to file, you could see your benefits increase by a cumulative 32 percent.3 That extra income could erase much of your savings gap.
Make catch-up contributions to your 401(k) and IRA.
Qualified accounts such as IRAs and 401(k) plans are popular retirement savings vehicles, primarily because of their tax-favored treatment. These accounts offer tax-deferred growth, which means you don’t pay taxes as long as your funds stay inside the account. Some even offer tax-deductible contributions.
Starting at age 50, you can put even more money into your qualified accounts through something known as catch-up contributions. In 2018 you can put as much as $18,500 into a 401(k) plan. If you’re age 50 or older, however, you can put in an additional $6,000 in catch-up contributions. Similarly, the standard contribution limit for IRAs is $5,500, but you can contribute an additional $1,000 if you are 50 or older.4
Cut your retirement expenses.
It’s possible you may be saving as much as you can but are still behind on your retirement planning. If so, you may want to scale back your retirement plans and cut your projected expenses. If you spend less in retirement, you’ll need fewer assets to fund your lifestyle.
For example, you could move into a smaller, more affordable home or relocate to an area with a lower cost of living. You could find more affordable ways to enjoy what you love in retirement, such as travel and hobbies. Perhaps you have debt that you could eliminate before you retire.
Also, don’t discount the idea of working in retirement. A part-time or seasonal job could provide supplemental income, which could make you less dependent on distributions from your savings. While a part-time job in retirement may not sound ideal, it could be the key to overcoming your savings gap.
Ready to close your savings gap? Let’s talk about it. Contact us today at M&P Personal Financial Planning. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
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