When you’re in your 50s, it’s likely that you’ve been in the workforce for a number of years and are in your peak earning years. Retirement is no longer something way off in the future; it’s real and will be upon you soon.
At age 50, you should have at least six times your annual salary saved for retirement, according to Fidelity Investments; by age 60, you should have eight times your salary saved. Although you might not quite fit the savings profile described, it’s not too late to make a difference.
Click through to see what you need to know to maximize your 401k in your 50s.
Take Advantage of the Catch-Up Provisions
People who will be 50 or older at any point during the year can make extra contributions to their 401k. In 2018, the limit on catch-up contributions is $6,000, in addition to the $18,500 of elective employee deferrals.
“For many individuals, this is the time to really ramp up savings if they got a late start or income was limited in their early working careers,” said financial advisor Sterling Raskie of Blankenship Financial Planning.
See a dozen secret moves to double your 401k.
Ramp Up Your Savings
The average 50-year-old has just $42,797 in savings, according to 2017 research from Statistic Brain. In case your savings account is on the low side, you might be able to save more — especially if you’ve recently become an empty nester. Choose to build up your savings now, and those funds can help supplement your 401k earnings when you retire.
Use These: 42 Ways to Save for Retirement
Hedge Your Bets on Future Tax Rates
If your company offers a Roth 401k, consider contributing to it in addition to a traditional 401k, said financial advisor Shomari Hearn of Palisades Hudson Financial Group.
“With the Roth 401k, you will be contributing after-tax money, so you won’t benefit from upfront tax savings that come with contributing to a traditional 401k,” he said. “However, it provides tax-free growth, so qualified withdrawals are not subject to tax in retirement.”
Take Advantage of Your Peak Earning Years
Beyond your 401k, utilize IRAs, save in taxable accounts and encourage your spouse to do the same.
“Your 50s are great for making up for lost time,” said Benjamin J. Brandt, financial advisor with Capital City Wealth Management. “Saving the additional funds might be tough, but harnessing your peak earning years as you approach retirement is a great way to master your 401k in your 50s.”
Limit Exposure to Company Stock
It’s rarely a good idea to have too much of your investment portfolio concentrated in any one holding, including your company stock — especially when you consider that companies can and do go out of business.
“If your employer is a publicly traded company, limit your exposure to company stock within your 401k plan to no more than 10 percent of your total retirement portfolio,” said Hearn.
Start Planning Your Exit Strategy
“Start thinking about an exit strategy,” said Portland, Ore., financial planner Grant Bledsoe. “Once you stop working, anything you take out of the account will be taxed as income,” he said. “Devise a strategy now that will minimize the impact of taxes down the road. This might include a conversion to a Roth 401k or Roth IRA, or waiting to take withdrawals until you’re forced to, starting at age 70.5.”
Understand Your Withdrawal Options
It’s possible to withdraw funds from your 401k account without incurring the 10 percent withdrawal penalty for withdrawing before age 59.5. To qualify, you must separate from service with your employer anytime during the calendar year in which you turn age 55, or later.
To tap your 401k penalty-free, do some advance planning if you can, and roll any eligible pre-tax money into your current employer’s plan to be able to take advantage of these rules.
Manage Old 401k Accounts
At this point in your life, it’s important to manage all of your old 401ks and other retirement accounts as part of an overall portfolio geared toward your retirement needs. Don’t ignore those old accounts. Consider consolidating your old accounts into a single IRA or, if eligible, into the 401k of your current employer.
Find Out: How to Roll Over Your 401k
Be Wary of Target-Date Funds
Target-date funds can offer a professionally managed solution for 401k plan participants who are not comfortable making their own investment decisions. Before investing in target-date funds, understand how the allocation dovetails with any outside investments and if the fund with the target date closest to your expected retirement date is the right one for you. If not, you can go with a fund with a shorter or longer target date.
Rebalance Your Portfolio at Least Once a Year
As you get closer to retirement, you’ll want to rebalance your portfolio to meet your financial goals. Some plans will automatically balance your plan for you, but that’s not necessarily the best strategy to maximize your 401k.
For people inexperienced with investing, it might be best to consult with a financial advisor.
Evaluate Fee Costs
Fee costs and performance are two important considerations you should make when choosing funds for your portfolio. The difference between 0.5 and 1 percent fees can equal thousands of dollars over time, which means that you could miss out on precious funds for your nest egg. Choosing to buy a fund that has higher fees, however, might be worth it if the return is significant enough.
Take Advantage of Employer Matching
Some companies that offer a 401k plan also offer a 401k match, which means that the company will match your contributions up to certain amount. Find out if your employer offers a match and contribute the full amount. For example, if your employer offers a match of 50 cents for every dollar you contribute, you’ll earn a 50 percent return on your investment.
Use a Retirement Calculator
To help keep you on track toward your retirement savings goals, use a retirement calculator such as the AARP’s tool. You can enter your expected retirement age, 401k contributions, pension plan amount and find out your estimated Social Security benefits.
With this strategy, you can get a clear picture of whether you will have enough income to sustain you during retirement. Then, you can make adjustments as needed.
Seek Professional Advice If You Need It
For help with retirement planning, consult with qualified financial advisor — if you don’t already have a relationship with one. Consider choosing a fee-only financial advisor, who will serve you in a fiduciary capacity that places your interests first. Even if you’re financially savvy, the third-party perspective offered by a financial advisor can be invaluable.
About the Author
Cynthia Measom is a Texas-based writer specializing in finance, business, parenting and education. With almost a decade of online writing experience, her work has appeared on websites such as Chron.com, The Bump and The Motley Fool. Measom received a Bachelor of Arts in English from the University of Texas at Austin.