For baby boomers closing in on retirement with $250,000 in savings, things could be worse. They could also be a lot better.
“It’s more than what a lot of baby boomers have,” said Daniel Roccato, a clinical professor of finance at the University of San Diego. “But it’s going to be insufficient as well.”
The youngest members of the oft-chronicled boomer generation will hit 60 in 2024. Many boomers are wondering how much they’ll need in savings for retirement, as well as what to do now if they’re coming up short.
“There are three big factors that weigh heavily on specific retirement savings needs,” said Nilay Gandhi, a Pennsylvania-based CFP and senior financial advisor with Vanguard. “How many years you’re going to spend in retirement, what your retirement lifestyle looks like, and how much you’re going to need to withdraw each year to support those goals.
“Retirement looks different for each individual, and therefore, the strategy to reach this goal must be personalized.”
Roccato points to three usual sources of funding for retirement: Social Security (with average checks less than $1,800 a month this year); company pensions, which only cover about 20% of us; and whatever money we’ve managed to save in 401(k) plans and elsewhere.
“Unless you hit the lottery or marry well or something like that … outside of those, it’s up to us,” he said.
Increase Contributions to Your Retirement Plans
You qualify for “catch-up contributions” to retirement accounts at age 50, so all boomers can make them if they have the means. These contributions exceed the usual annual limits and are designed to help people make up ground more quickly.
If you haven’t been doing this and you have less than $250,000 in savings, it’s something to strongly consider.
“Ramping up contributions over the next few years via your employer-sponsored plan and IRAs can make a huge difference,” Gandhi said. “According to our recent How America Saves report, 38 percent of participants with an account balance of more than $250,000 made catch-up contributions.
“For the 2023 tax year, you can contribute up to $7,500 to IRAs and up to $30,000 in your 401(k)/403(b) plans.”
You should give this your all, even if you aren’t in a position to exceed those annual limits, Roccato advises.
“If you can, put every ounce you can into beefing up your contributions,” he said. “At least enough to get 100 percent of the company match.”
He offers an additional tip for boomers on investing: While risk always needs to be considered, be wary of getting too conservative.
Delay Your Retirement
“Work longer” may seem like the last thing you want to hear. Boomers who are lighter on savings may have to consider it, though.
“You may have a wish to clean out your cubicle when you’re 60 or 62,” Roccato said. “Don’t do it.
“Because we’re living longer, we’re going to have longer retirements. You might ratchet your work down. But to give up a paycheck in your early 60s … it’s not advised.”
Again, your calculations need to include the number of years you expect to spend in retirement, your desired lifestyle, and how much you plan to withdraw each year.
“You may benefit from working longer if you can do so,” Gandhi said. “This provides more time to boost retirement savings and naturally delays when you need to start tapping into those funds. It can also help to increase your Social Security benefits, depending on your age.”
Consider Leveraging the Equity in Your Home
Your home may be a valuable retirement asset, particularly if you’re willing to downsize and/or relocate to a less expensive housing market. Realtors and financial planners can help with these decisions.
“This will vary based on location, appreciation and tax implications, but we’ve found that this strategy can potentially unlock approximately $100,000 of home equity,” Gandhi said.
Should you explore a reverse mortgage? It may make sense if you have very little in other assets, if you’re sure you want to stay in your home, and if you’re comfortable with possibly leaving a lot less on the table for your heirs. Roccato thinks of it as more of a “nuclear option.” Not everyone who plans to stay in their home is able to do so. Plus, those heirs may not be on board.
Work With a Financial Planner
Partnering with a financial pro can make sense at pretty much any stage in life. For boomers, it’s particularly important to find the right match.
“You want to work with a financial planner, a CFP (certified financial planner) who has a proven track record of not just helping people grow their wealth, but who also has expertise in income distribution,” Roccato said. “Not all CFPs have that.”
“If you’re nearing retirement and don’t have enough saved, now is the time to re-evaluate your goals,” Gandhi added. “Timing retirement can be tricky, so if you’re unsure where to begin, it might be time to tap a financial advisor.
“They can help you develop a customized retirement plan based on your current financial situation and future goals, as well as provide ongoing coaching, giving you the confidence you need for retirement success.”
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