According to a 2019 survey of 2000 participants performed by GOBankingRates.com, 64% of those Americans expected to retire with less than $10,000 in their retirement savings account.
Don’t worry if you’re a part of this group. It’s never too late to start saving, even if you’re approaching retirement. According to retired certified financial planner Dick Bellmer, a former president of the National Association of Personal Financial Advisors, people should regularly review their retirement plan a minimum of every three years.
Let’s assume you’re reaching 50 and have yet to put anything aside for retirement. So, what are your options?
Here’s how you can begin your retirement savings plan.
Set up automated savings and improve budgeting strategy
First, evaluate your budget and remove any overspending costs to free up cash. According to Nadine Marie Burns, a CFP in Ann Arbor, Michigan, food is one area where many people waste money.
By creating meal plans, you may save over $100 each month from wasted or unused food.
Come up with a realistic savings goal and how much you can save automatically. If that’s too much to take in at once, focus on tiny modifications to your retirement plans over time.
George Gagliardi, a certified financial planner in Lexington, Massachusetts, suggested that you plan to live a long life and adjust your retirement income projections accordingly.
You have no influence over how long you live, but according to the Social Security Administration, the average 50-year-old man may expect to live another 30 years to 80.
On the other hand, a 50-year-old woman can expect to live for 33 years, to 83.
Maintain your investments
Set up automatic investments if you have a non-retirement portfolio or if you’re self-employed, managing your retirement fund. You will enjoy the benefits of dollar-cost averaging.
Regular investments can help you acquire more shares when stock prices fall and get fewer stocks when they are high.
As a bonus, you won’t have to remember to write a check each month.
According to Sandra Adams, a CFP in Southfield, Michigan, you also need a mix of different investments. Having investments of at least 60% in stocks will help you attain your objective over time.
However, don’t take too much of a chance when the market falls. Hopping in and out of the investment market might create severe problems in your plan, and you can’t manage those obstacles if you’re already behind schedule.
Pay off your debts
Do you have credit card debt, medical debt, or any other unsecured debts?
Pay them off as early as possible to free up money for savings. If you have a mortgage, create a plan to pay it off before you retire. Malcolm Ethridge, a CFP in Rockville, Maryland, suggested that removing housing expenses such as mortgage payments can lower the amount of annual expenses.
As a result, it will also reduce the amount of annual income you actually need to save for retirement.
Natalie Pine, a CFP in College Station, Texas, recommends avoiding future debt such as car loan debt. Instead, she recommends putting your income into a new account for buying a new car.
This will help you pay for a car in cash and spend less overall. Avoid taking out high-interest loans such as payday loans
Save for emergencies
Also, keep an emergency fund separate from your retirement savings to handle unexpected needs.
You can build one by putting money into it from bonuses or job promotions.
Consider insurance, especially disability insurance. It will be challenging to recover from any financial crisis if you can’t work anymore at 50 and haven’t saved.
Make absolutely sure you have sufficient home, auto, and umbrella coverage. Make sure you’re covered by health insurance.
Maximize your contributions if possible
According to James Shagawat, a CFP in Paramus, New Jersey, if your company offers a retirement plan, make sure you invest enough to receive the full match. If you’re 50 or older, you can contribute up to $26,000 annually.
You should also ask for any other retirement savings plans offered by your organization.
If your employer matches your contribution with offering corporate stocks, you may face “concentration risk.”
According to the Employee Benefit Research Institute research, 401(k) participants who receive corporate stocks as their employer match might end up investing more than half of their entire account balances in those stocks.
If this happens, if your organization performs poorly, it may impact your returns.
Contributions to a Roth IRA with diversified investments might help offset this issue.
Since Roth contributions are deposited with after-tax dollars, your withdrawals can’t be taxed once you reach retirement age.
If you’re 50 or older, you can contribute up to $7,000 every year. In 2021, if you’re single, eligibility will be phased out between $125,000 and $140,000 of your MAGI [modified adjusted gross income], and if you are married and filing jointly with your spouse, it will be $198,000 to $208,000.
Justin Meinhart, a CFP in Winston-Salem, North Carolina, suggests making these investments early in the tax year rather than waiting until the April 15 tax-filing deadline.
Work as long as possible
According to Sean Pearson, a CFP in Conshohocken, Pennsylvania, those days are gone when people used to retire at 60 or 62.
Now, people are working beyond the age of 60 or 65. They prefer investing their time in something less stressful than a high-stress job, which involves 40-to-50-hour work per week.
Following this strategy, people can continue to contribute to traditional IRAs even when they reach the 70s, as per the SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2019.
Work on side hustles or search for 'found money'
Do you still need more retirement income? Then look for a part-time job you’ll enjoy or sell items you don’t need at an auction.
According to CFP Benjamin Offit of Towson, Maryland, you might consider selling your property and downsizing or moving to a smaller area with lower housing rates.
Downsizing can result in significant savings that can be used for retirement.
Finally, Sarah Carlson, a CFP in Spokane, Washington, recommends checking your state’s lost asset site for any old accounts. If you’ve worked for other companies, you may have accounts that have been turned over to the state.
Look for these accounts and reconnect with them to collect the money you forgot to withdraw or have lost track of.
Open a Health Savings Account (HSA)
Before you retire, you need to consider how you will manage unforeseen medical bills. Large medical expenses can suddenly exhaust a lifetime’s worth of money.
According to a 2019 Fidelity Investments estimate, a couple in their mid-60s will need $285,000 in retirement to meet health care costs.
Apart from that, people reaching their 50s can’t ignore the exorbitant cost of long-term care in nursing homes. According to a Genworth research, the typical annual cost of a semi-private room in a nursing home in 2018 was $89,292.
Considering these facts, people must plan retirement after including future medical expenses.
Long-term health insurance is one option that covers extended medical care such as nursing and assisted living. If you meet the requirements, you should start a health savings account immediately.
Your taxable income will be reduced once you get this insurance. Your investments will grow tax-free. Once you reach the age of 65, you can withdraw funds without penalty or tax (it will be taxable if used for anything besides qualified medical expenses).
You should do some homework and choose the best features for you, such as low fees and low minimum balance requirements.
Boost your Social Security benefits
The earliest you can begin receiving Social Security benefits is at the age of 62. However, at age 50, it’s a good idea to start thinking about how you’ll collect benefits. You may estimate your benefits using this Social Security calculator.
According to experts, most people claim Social Security benefits too soon.
That’s so unwise. People can earn more from Social Security benefits if they postpone retirement.
According to Elijah Kovar, co-founder of Great Waters Financial in Minneapolis, taking Social Security at 70 instead of 62 increases your monthly payout by around 76%.
Waiting to receive Social Security is also a great idea to make more money if you’re married. The surviving spouse gets the bigger Social Security payout if one spouse outlives the other.
You’ll have a larger pot to draw in retirement if the primary breadwinner waits to claim benefits.
Your tax situation is another crucial factor to consider while taking Social Security benefits. It’s the best source of income we have outside of Roth IRAs, from a tax point of view.
Implementing techniques that reduce taxable income, such as donation, charity, etc., can help you maximize your Social Security income.
Use income from traditional pensions
If you get a defined-benefit pension plan through your current or past employer, you should receive an individual benefit statement once every three years.
Once a year, you can also ask for a copy of the statement from your plan’s administrator. The statement should indicate the advantages you’ve gained as well as when they’ll become fully available to you.
It’s also a good idea to understand how your retirement benefits are calculated. Many programs use formulas depending on your income and years of service.
So, you might be able to make more money by working longer.
Don't ignore taxes
Finally, keep in mind that not all the money you save for retirement is yours to enjoy.
When you take money out of a regular 401(k) or traditional IRA, the IRS taxes you at your ordinary income rate.
So, if you’re in the 22 percent tax bracket, each $1,000 you take will only bring you $780.
So you must plan ahead to keep as much of your retirement money as possible. Relocating to a tax-friendly state might be a wise option.
Author Bio: Lyle David Solomon is a licensed attorney in California. He has been affiliated with law firms in California, Nevada, and Arizona since 1991. As the principal attorney of Oak View Law Group, he gives advice and writes articles to help people solve their debt problems.
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