Is it too late to start saving for retirement if you’re in your 50s? There are generally five phases of retirement planning – accumulation, pre-retirement, then early, mid and late retirement. Absolutely, it’s easier when you start early. In the accumulation phase you adopt good savings habits that have a direct impact on your financial future. However, the answer to the proverbial question, “When’s the best time to plant an acorn?” is anytime. The point is to get started.
Life’s all about going through transitions. It’s not always smooth sailing, yet hopefully you keep moving ahead. There are many reasons why individuals in the pre-retirement phase (the 15-year period before retirement) are saving late-bloomers, including:
- You have competing needs for retirement savings including raising a family, rising home prices, debt reduction, building cash reserves and college funding.
- Difficult financial and personal times such as the COVID-19 pandemic, being injured with job loss or having reduced hours, etc.
- Procrastination – You want to save but you put it off and suddenly, you’re in your 50s.
- You invest in a career or business
Six Tips to Get on Track
- Set your goal – Define what you want your life to look like and know the “whys” – Why they are important to you? When the “whys” get big enough, then the rest tends to magically fall into place. These are the building blocks of your plan.
- Reverse engineer the capital required – Your goal may be more achievable than you thought. What is it going to take to maintain your lifestyle? Subtract your cash flow sources such as pensions, Social Security and rental income, and the balance is what you need to fund from capital. Say you need an additional $2,000 or $15,000 a month. Using a 4% withdrawal rate, you’ll need $600,000 or $4.5 million of investment capital. Subtract expected business sales proceeds, inheritance, etc., and the balance is what you need to accumulate in your retirement savings. Finally, calculate the amount of additional savings to fill the gap between what you need in the future and what you’ve saved so far.
- Make catch-up contributions to your 401(k) and Individual Retirement Account (IRA) plans – Employee contribution limits for 2021 are $19,500 and $6,000 for 401(k) and IRA, respectively. Those individuals who are 50 years or older can contribute an additional $6,500 and $1,000 in catch-up contributions. Make sure to confirm your eligibility and limits with your plan administrator and Certified Public Accountant (CPA).
- Consider working longer – More cash can mean greater security. There are many people who continue to work for reasons other than a paycheck e.g. benefits, sense of purpose and staying engaged.
- Pay off debt – People may find it advantageous to reduce their expenses.
- Be nice to your elders – Baby boomers are expected to pass up to $68 trillion to their heirs. However, their financial advisors may be planning alternatives for your future inheritance including the costs of aging and your parents not being a burden on anyone as well as philanthropy.
Often, Americans get serious about retirement planning in their 50s. The kids are off the payroll, they can focus on their future, and they want to minimize making mistakes because they don’t have the time to earn it again. And remember what Albert Einstein said, “Nothing happens until something moves.” Seek sage advice at any age and secure your future wisely.
This article can also be viewed at the Reno Gazette Journal.