It’s no secret that most of us don’t save enough for retirement. After all, it takes time and effort to save money in the first place, and if you’re like most people, you’re not exactly in an ideal position to start saving now. The good news is, there are things you can do to get on track, so you can start catching up during your retirement years.
The longer you wait to start saving for retirement, the longer you will have to earn additional money to catch up on what you’ve missed. Retirement account contributions are not the only way to work towards financial independence, but they are perhaps the easiest.
If you are reading this, it means you’re already well aware that you should be saving for your retirement. But here’s the deal—you’re probably not doing everything right. You may have a ton of money saved, but you have to make more moves to catch up. You can’t get the same results from a savings account that you can from an investment account. You can’t buy a stock if you haven’t saved a down payment.
Your 50s and 60s…. Traditionally, this is the time when most Americans who have dedicated 30 years or more to their careers begin to look forward to the days when they will be free from their 9-to-5 jobs. But before you say goodbye to your morning commute, make sure you have enough money for the rest of your life. And unfortunately, many professionals have put off, neglected or simply don’t know how to prepare properly for most of their professional lives. I worked with an older man named Dan who literally laughed out loud every time someone asked him when he was going to retire. Dan lived his whole life from paycheck to paycheck, so he had almost no savings. His plan was to wait until he was old, then collect social security and live off it. I fear that for many people, their plan is not far from Dan’s (intended or unintended). According to retirement planning platform Fidelity, Americans aged 50-59 have an average of just $203,600. While this may seem like a lot to some people, it’s just not enough to secure your retirement. With traditional financial planning, a $200,000 savings pot would provide about $8,000 per year, or $667 per month, to cover living expenses. Add to that an average welfare payment of $1,130, and you are left with only $1,797 a month to pay for everything: Your home, vehicle, food, medical care, etc. If this scenario of wanting to retire but not having enough savings sounds like your personal situation, don’t panic. You may have missed a few key years to build wealth, but that’s no reason to lose hope. Here are 10 great strategies to help you catch up on your retirement savings between the ages of 50 and 60.
1. Refine your plan
The first thing you need to do is create a very clear plan on how you want to retire. This should include very specific details, such as. B. :
- When do you want the work done?
- How much money do you think you’ll need
- How much you need to save each month from now until you reach your goal.
If you’re not sure how to calculate all of this, start by determining how much you need to save. To do this, take the estimated annual cost and multiply it by 25. If you have no idea what your expenses will be, a useful tip that is often recommended is to assume that you will need about 80% of your current income. Here’s an example of how it can all come together:
- If you make $50,000 now,
- You will probably need $50,000 x .8 = $40,000 at retirement.
- So you need to accumulate an amount of $40,000 x 25 = $1 million.
This calculation uses a popular measure of financial planning, the 4% rule. The 4% rule is a study showing that a retiree can safely withdraw up to 4% per year of their roll-over (adjusted for inflation) for at least the next 30 years without fear of running out of money. Mathematically, 25 is the inverse of 4 percent (25 = 1/0.04). Once you have determined your nesting goal, the next step is to determine how much you need to save each month to reach your goal. You can do this using a simple free online calculator, such as the SEC. Example: Someone in their 50s with $200,000 in savings who wants to retire in 10 years with $1 million, needs to save $2,517 a month to reach that goal.
2. Compress your budget
To start saving for retirement, you have to really dig deep and save in a way you’ve probably never done before. And for that you need a budget. A budget is a plan for how you want to spend your money, as well as a convenient place to keep track of your progress. It can be as simple or as detailed as you like. Personally, I’ve always found Excel to be an excellent tool for estimating all my expenses at the beginning of the year and then recording them as I go. The best way to include retirement savings in your budget is to treat it like any other bill you have to pay off (like a mortgage or credit card). Let your brain think that this money has already been received and is non-negotiable. Of course, this means that you will probably have to save money somewhere else to free up cash. I usually start by analyzing my discretionary spending and looking for simple ways to reduce it:
- Restaurants / Meals
- Entertainment / Movie tickets
- New clothes
- Excessive travel
- Et cetera.
You can make the following considerations: Which do you prefer? Are these purchases insignificant or a successful retirement? When it’s phrased like that, I think the choice is pretty clear.
3. Take advantage of your pension savings
It’s no surprise that aggressive saving is the key to growing your wealth. However, this is only one piece of the puzzle. I knew a man who wanted to build up a savings by putting as much of his salary as possible into a savings account. When I asked him how much interest this bank account earned, he said it was less than 1%. Despite his good intentions, his strategy was wrong. If you want to maximize the growth of your savings, you should use deferred retirement accounts like 401ks and IRAs. There are several important reasons why you should use these types of accounts instead of traditional bank accounts or even investment accounts:
- Automatic contributions. In the case of a 401k, the money is automatically deducted from your paycheck without any action on your part. Contributions to an IRA can also be set up in the same way by scheduling regular transfers from your bank account. Like I always say: Out of sight, out of mind is one of the best ways to not sabotage your savings efforts.
- Investment opportunities. By default, your 401k and IRA consist of investments that can include stocks, mutual funds, ETFs, etc. This means that over time, you are much more likely to grow your money than with a low interest bank account.
- Tax savings. This one is great! When you put your after-tax money into a savings account, you are effectively only contributing 75% of every dollar you earn, as the rest goes to the IRS. But if you use a tax-deferred retirement plan, your savings will be contributed before taxes. This means that 100% of every dollar saved goes to you.
If you are not already participating in your company’s 401k plan, ask your human resources department how you can participate. If you have an IRA, you can literally go to the website of any reputable financial institution (Vanguard, Fidelity, Schwab, etc.) and open it immediately. And don’t worry, if your employer doesn’t offer you retirement plan options, there are still plenty of ways to benefit from these plans yourself.
4. Get your full 401k from an employer
This is another reason to contribute as much as possible to your 401k plan at work: You could be missing out on free money! To encourage employees to contribute to their 401(k) plans, most companies offer so-called employer matching contributions. Here they can charge $0.25, $0.50 or even $1.00 for each dollar saved (up to a certain limit). The exact amount is determined by your employer’s rules and varies from company to company. When I changed jobs a few years ago, one of the first things I did was find out about the company’s 401k plan and its program. I wanted to make sure I knew exactly how much I had to pay to get every penny they would offer. These appropriate contributions should not be waived. I would say they added an average of $4,000 a year to my 401k. And that’s for nothing but good saving.
5. Use of catch-up contributions
The IRS recognizes that older savers may need to set aside a little more of their income to successfully prepare. To address this, they are proposing a so-called catch-up contribution for anyone over the age of 50. Catch-up contributions are essentially an increased limit on the amount you can save in your tax-deferred retirement plans. For example:
- C 401k: The regular contribution limit is $19,500 (from 2021). But savers 50 and older can save up to $26,000 to earn an additional $6,500.
- WITH IRA : The regular contribution limit is $6,000 (from 2021). But savers 50 and older can save up to $7,000 and get an extra $1,000.
Remember, you don’t have to pay taxes on the money you put into these accounts. So the more you save, the more of your money you can keep for yourself.
6. Optimisation of asset allocation
The types of investments that make up your savings pot play an important role in its growth over the next ten years. This is called asset allocation, and there are several factors to consider when optimizing it.
- Your risk tolerance – Would you feel comfortable if your portfolio suffered a loss for several years? This is a personal question that every investor should ask themselves. If it makes you feel good, you may be more willing to take risks. But if not, you should probably invest more conservatively.
- Growth potential – How much can I grow my investments? Traditionally, small and medium-sized companies can grow faster than large stocks and corporate bonds. However, they are also much riskier. Again, you have to find a balance that works for you.
- Protection – Even if you are fairly risk tolerant, it is often advisable to use different asset classes so that they can hedge or offset your losses. A classic example is a portfolio of stocks and bonds whose prices move in opposite directions. The result is a more consistent portfolio with fewer losses.
The challenge is to strike a balance between each of these factors. For example, as a more aggressive investor, I am comfortable with an asset allocation of 75% stocks / 25% bonds. But someone who is more averse to risk and wants to minimize the chance of losses may be better served by an asset allocation of 50% stocks / 50% bonds.
7. Advance payment of social security benefits
If you want to retire as soon as possible, one source of income you can use as soon as possible is Social Security. Depending on how long you work and how much you earn, that could mean an extra $1,000 to $2,000 a month in your pocket. For most people, Social Security fully retires at age 67. However, you can start working as early as age 62. Start making early payments before you are 60. If you do, the benefit you receive will be reduced by 30 percent of the total amount to which you are entitled. Remember that if you are divorced or your spouse has died, you may also be entitled to some of his or her Social Security benefits. The best way to be sure is to log into your official Social Security account and check your eligibility.
8. Paying your debts
It’s one thing to make a budget and try to keep track of your spending. But if you really want your retirement nest egg goal to shrink, you need to think bigger. The best way to do this is to get rid of your debts. Your fault could be anything: Mortgages, car loans, credit cards, home equity loans, personal loans … even old student loans if you’re still paying them off. Part of my plan for a successful retirement will be to pay off my mortgage. Why? Because it would reduce our cost of living by about $1,500 a month. According to my calculations, we would need about $450,000 less in our roll call (if I use the 4% rule as an estimate). If you have multiple debts that you want to reduce, there are two good strategies for achieving this goal:
- Debt Snowball Method – Rank your debts from smallest balance to largest and focus on paying off the smallest first. When you pay off a debt, you transfer that payment to the debt with the next lower balance, so your payments increase with each cycle (like a snowball).
- Avalanche of Debt Method – Rank your debts from highest to lowest interest rate and focus on paying off the debt with the highest interest rate first. When you pay it off, you transfer that payment to the debt with the highest interest rate, so your payments increase with each cycle (like an avalanche).
While trying to pay off that debt, don’t sabotage yourself by taking on more debt. If you z. B. Try to pay off your credit cards, after that you should not apply for a car loan. Look for other alternatives, such as. B. buy a cheaper car or save until you have the money to buy a car.
9. Supplementary income plan
Just as paying off your mortgage and other loans can lower your savings goal, additional sources of income during retirement can also lower the amount you need. And starting now will give you the extra incentive you need to fully leverage your savings. I know several people who have supplemented their retirement income by owning several rental properties. By collecting payments from tenants, they were able to make a profit of nearly $1,000 per month and lower their nesting goal by about $300,000. The same applies to other types of income:
- Extra earnings – This can be any activity you do from time to time, for example. B. writing articles, tutoring, delivering food, etc. The great thing about side jobs is that you can do them whenever you want and for as long (or as little) as you want.
- Part-Time Work – Even if the idea of retirement is to not work, many people find it financially and psychologically beneficial to find part-time work while doing what they enjoy. This will help you make new friends, lead a positive social life and avoid the potential danger of isolation that retirement can bring.
- Business Interests – Many people have created their own sources of income, either by starting their own business or working with others. The man working with my wife did this by starting his own lawn maintenance service, and he plans to continue doing it until he retires.
Keep in mind that if you earn a significant amount of income while working, it may affect your eligibility for Social Security benefits. Under the program’s rules from 2021, you can only earn up to $18,960 before your benefits are reduced. Outside of this amount, you will receive only $1 for every $2 of benefit you are entitled to. The reduction is cancelled when the full retirement age is reached. You will then again be entitled to the full amount (plus the money that was withheld), and the extra money you earn at work will no longer affect your benefit.
10. Do not attempt to use key combinations
After all, the last thing you want to do to successfully retire in the next ten years is to shoot yourself in the foot by trying to squander your money. Shortcuts can be anything you do with your money, thinking you are cheating the system, but in reality taking many unnecessary risks. Here are some common examples:
- Get rich quick systems – You can find them everywhere on the internet – people who promise to tell you the secrets to get rich and make millions of dollars. But in reality, they just want you to buy their worthless product or sign up for a low-cost course that will cost you hundreds or even thousands of dollars. Be careful.
- Speculative Investments – This is not the time to put everything you have into hot stocks or other alternative investments that make headlines. For example, the value of cryptocurrencies has skyrocketed in recent years. But whether this is a bubble or whether they will lose their value once government regulations take effect is also a hotly debated topic. When it comes to investing, stick to boring funds that grow over time.
- Getting involved in things you can’t handle – It might seem like a good idea to start selling houses or starting your own business. But if you have no experience in this area, I highly recommend being careful or avoiding them altogether. We knew a couple who opened a business downtown, but within 12 months they went bankrupt. I don’t even want to imagine what their losses were.
My observation is that shortcuts always lead to problems. They are tempting because they seem a thousand times better than work and sacrifice. But in the end, it usually doesn’t work out the way you thought it would, or worse, you might end up with less money than when you started.
If you are in your 50s or 60s and have not yet saved for retirement, all is not lost. You will have to take more aggressive measures than you would have done when you were younger. But achieving financial freedom is still very possible. Once you have determined your goal, you should take full advantage of your retirement savings (tax deferrals, employer contributions, additional contributions, etc.). Optimize your investments to maximize your savings without taking unnecessary risks. Cut your budget to save as much as possible. Critically evaluate your spending and try to eliminate any large debts. For example, include other sources of income in your plan. B. Income from social security and other possible sources such as supplementary income and part-time work. Finally, don’t try to get creative with your money or take shortcuts. Stick to what you know and what you can do. You’ve come so far with everything you’ve saved, and the last thing you want is to lose it all. By following the steps outlined above, you are protecting your financial future.
There are two groups of people that want to retire in the US: those who are closer to retirement and those who are further away from it. The closer you are to retirement, the deeper the hole you will have to dig out of to make up for the amount that you are short of.. Read more about where to put retirement money after retirement and let us know what you think.
Frequently Asked Questions
How can I catch up on my retirement savings in my 30s?
Everyone knows that the sooner you start a savings plan, the more you save. But what happens when you wait too long? You lose all of the progress you’ve made. In this 30-minute video, financial adviser Jason Hall outlines the steps you can take to make up for lost time and keep your retirement financial dreams alive. If you’re in a situation where you need to save up a large sum of money by the time you’re in your 30s, you might be wondering what you should do. Here are ten steps to help you get started. You can fill in the blanks as you go for your own situation.
How can I catch up on my 401k?
At some point, we will all need to save up for retirement. While many of us are already saving for our future, it’s still important to sit down and take a good look at your savings, and why you’re saving what you’re saving. If you’re nearing retirement, or even if you’re just starting out, here are 10 tips to help you get where you want to be. It’s never too late to catch up on your 401k fund and, in fact, it might be a good idea to set aside that money each month from your twenties to your fifties. Here are some steps you can take to begin to maximize the use of your 401k funds.
Is it too late to save for retirement at 50?
The average American retires with $200,000 less in savings than they would have liked, and this gap has only gotten wider in recent years. It can be too late to save for retirement when you’re at your peak earning years. I know, because that’s how my story goes. At the age of 50 I was working a high-paying real estate job and enjoying a sweet mortgage, but I had less than $10,000 in my 401(k) and no savings for retirement. I was frustrated and anxious about my lack of financial security. I also worried that I might not be able to enjoy the same lifestyle I had come to expect when my wife and I retired.
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