For most Americans, retirement generally seems like a far-off goal. However, as soon as we reach our 50s, suddenly retirement can feel like it’s coming up faster than a freight train. If your retirement nest egg isn’t quite where you want it to be at age 50, there are a few steps you can take to help catch up and reach your savings goals.
Not all of the steps are easy, but if you commit yourself to prioritizing your retirement plan once you reach 50, you can make major strides toward getting where you need to be by the time you retire.
Take Advantage of Catch-Up Contributions
One of the huge advantages the IRS grants those ages 50 and older is the ability to make “catch-up” contributions to retirement plans. For 2021 and 2022, you’re allowed to kick in an additional $1,000 to your IRA, or a whopping $6,500 to your 401(k) plan. This brings the total allowable elective contributions to these accounts for 2021 to $7,000 and $26,000, respectively. For 2022, the total allowable 401(k) elective contribution, including the catch-up provision, rises to $27,000. If you’re able to begin this catch-up contribution starting at age 50, you could significantly increase your retirement account balances by age 60.
Contribute To an HSA
An HSA, or health savings account, isn’t always thought of as a retirement account, but when used properly, it can be quite an effective one. For starters, you’ll get a tax deduction on contributions you make to the plan, and any earnings are tax-deferred. Better still, if you withdraw your contributions or earnings to pay for qualifying health care expenses, those distributions are completely tax-free. As you age into retirement, you’re likely going to need funds for your healthcare, making an HSA an obvious choice. But the final kicker is that if you reach age 65, the IRS permits you to take tax-free withdrawals from an HSA for any purpose at all, not just medical expenses. This could potentially make your HSA the ultimate retirement account, as your contributions, earnings and withdrawals would all be completely tax-free.
Work a Side Gig
Working more as you approach retirement isn’t likely to be your dream scenario, but if you’re looking to maximize your retirement savings, the more you can earn, the better. In the current environment, employers are desperate for workers, so you might actually be able to find work in a field you truly enjoy. Another option is to turn one of your talents into your own gig. Demand is strong for those with special abilities, such as crafting, woodworking, interior designing, writing and a host of other options.
Pick Up Extra Hours
If you’re happy at the job you’re currently working, you might be able to squeeze a few more hours out of your employer, since they might be short-staffed.
Tap Your Home Equity
If you’re nearing retirement and own a home, there’s a good chance that you’ve already paid off your entire mortgage, or are close to it. This could mean that a significant amount of your net worth is actually tied up in your home equity. If your retirement accounts seem a bit lean, remember that you may have a nest egg already built into your home. There are numerous ways you can access this money, from a cash-out refinancing to a home equity loan and more. This option can carry a bit of risk, as you don’t want to put yourself in the position where you might lose your home. But talk to your financial advisor and/or real estate professional to see what your options are, along with the benefits and risks.
Consider Delaying Retirement
Delaying retirement to help meet your savings goals is a great strategy if you can manage it. Even just a few years of additional time in the workforce can translate to multiple years of extended retirement. Not only will you be earning for a few years where you would normally be withdrawing, but investing your retirement account for an additional five to seven years could add a significant amount to your ultimate nest egg. This path isn’t for everyone, but if you’re coming up short of where you want to be in terms of retirement savings, it’s a significant fix.
Although it would be nice to say that you can turn a nest egg of $1,000 at age 50 into $1 million in a few years, that’s just not realistic. However, the $1 million retirement goal that seems to be constantly quoted on the internet doesn’t apply to everyone. In fact, it’s entirely possible that you can live a happy and healthy retirement on $500,000, $250,000 or even less, depending on your lifestyle, where you live, what type of insurance you have and so on. The bottom line is that whenever you’re undertaking a financial assessment, it pays to be realistic with your figures and your expectations.
Review Your Social Security Statement
Although Social Security was never meant to completely replace a retiree’s income, it still remains a vital component of most Americans’ retirement plans. When sorting out how much you’ll need to save for retirement, don’t forget to check your most up-to-date Social Security statement to see what you may be receiving. Bear in mind that there is talk of a reduction in benefits for retirees after the Social Security Trust Fund is exhausted, so don’t completely rely on current estimates. However, factoring in Social Security as a supplement to your existing savings may mean you won’t have to play catch-up as much as you think you might.
Good To Know: All the States That Don’t Tax Social Security
Sometimes, generating additional revenue or socking away more money into retirement accounts just isn’t feasible for pre-retirees. In that case, you can accomplish nearly the same thing by trimming your expenses. Perhaps this can be as simple as cutting out discretionary purchases for a few years and saving the money. Or, you can make more dramatic changes like downsizing your home. No one wants to start cutting things out of their life before they retire, but if you think about reducing your expenses as a way to gain income for your golden years, the idea might become easier to swallow.
A final scenario to consider if you’re looking to boost your retirement savings is to relocate to a less expensive area. You might be surprised at how your standard of living can go up simply by moving to a more affordable location. If you can live the same lifestyle somewhere else in the country — or even the world — for 20% less than what it costs you now, that’s a great way to sock away extra money into your retirement accounts for the next decade or so.
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