If you’re one of the 31 percent of Americans with no retirement savings or pension, then you may be feeling overwhelmed by the daunting prospect of catching up.
But don’t feel defeated or give up. “I don’t believe it’s ever too late to get on track financially,” says Chris Schaefer, senior advisor at wealth management firm MV Financial.
If you’re looking to start getting your savings in order, you’re likely in a good place to do it: “For most middle-class folks, the fifties and sixties are the prime earning and savings years,” he says. “Typically you are earning the most in your career and the kids are grown and out of college, so there should be more discretionary funds available to catch up.”
And once you pass age 50, the IRS allows you to make catch-up contributions, which means you have the option to contribute more to your retirement accounts than younger people do. For instance, in 2016, all taxpayers can contribute up to $18,000 to a 401(k) plan, but those older than 50 can contribute an additional $6,000, for a total of $24,000.
Whether you haven’t given retirement the attention it deserves or life circumstances have rearranged your original plans, know that there’s still time to build a nest egg.
Start Planning Now
Planning for retirement starts by figuring out how much you need to save and how far behind you are.
Peter Blatt, president of Blatt Financial Group, suggests aiming to have 10 times your annual salary put away when you retire. If moderately invested, you can withdraw earnings of 4 to 6 percent per year and the money will last you 30 years, he explains. To get there, Blatt recommends “a process of regularly paying yourself first.” For example, try automatically transferring 10 percent or more of your paycheck into an IRA, 401(k), or other retirement savings vehicle.
Even at this late date, “the growth and income on a tax-deferred retirement account will compound, allowing you to accelerate and maximize overall growth,” says Richard Baum, partner at Anchin, Block & Anchin.
If you’re facing competing financial priorities, such as helping children pay for college and caring for aging parents, it’s unwise to put those needs ahead of your own need for retirement savings. “I always think of the safety instructions on an airplane,” Schaefer says. “The flight attendants instruct you to put your oxygen mask on before helping others. The same is true with finances; you can’t help others until you take care of yourself.”
“The only person who is going to be able to help you accomplish your goals is looking at you in the mirror,” says Bob Gavlak, CFP and wealth advisor with Strategic Wealth Partners. “Once you have a plan in place to take care of yourself, then you can put together plans for the other goals.”
Cut Your Expenses
“There are two factors that affect your retirement savings: earnings and expenses,” he says. “The difference between my earnings and my expenses is the amount I can save for retirement. Most people overspend on daily expenses, and small tweaks on what you spend daily can significantly increase your rate of savings.”
Learning how to be flexible with your plans can be just as important as getting serious about retirement planning. Don’t give up; just readjust. “Starting to work on your financial success today is far better than waiting until tomorrow, next week, or next year,” Gavlak says. “Even though you may not be exactly where you had hoped, you can always put a plan in place to understand what the best route from today can be.”
Choose a Retirement Plan
As you start saving more money, deposit it into an investment account or retirement plan instead of simply squirreling it into a savings account. If you have the option of an employer-sponsored retirement plan, like a 401(k) or 403(b), start with that. If your employer matches contributions, make sure you contribute as much as the employer is willing to match — and “if you can, fund more in order to grow your retirement benefit,” Blatt says.
If you don’t have an employer-sponsored retirement plan, Blatt recommends opening an Individual Retirement Account (IRA) and funding it to the maximum allowed each year. If you earn $132,000 or less (or $194,000 or less for a married couple), you can open a Roth IRA and pay taxes on contributions now, so your withdrawals will be tax-free in retirement. If you earn more, use a traditional IRA. If you have a high income, and therefore a higher tax bracket, you’re likely to benefit more from a tax-deductible traditional IRA contribution, Gavlak says.
If you are self-employed or own your own company, consider funding your own 401(k), SEP, or SIMPLE plan. If you want to deduct and fund more than $50,000 per year, look into a defined benefit type of retirement plan.
If you’re really behind and nearing retirement age, “it can make sense to look into cash-out refinancing a home or even doing a reverse mortgage on your primary residence,” Gavlak says. “These strategies can create cash for other spending needs, while allowing you to save your earned income more for your retirement. However, these are very specific strategies that need to be fully discussed and planned out with someone to make sure you don’t get into a worse situation.”