One of the most commonly-repeated bits of retirement planning advice is this: You should start saving and planning as early in life as possible. Generally speaking, this is good advice, and those who start planning when they’re 20 have a definite leg up on those who do not.
The trouble with this advice, however, is that it can be daunting and discouraging to those who are unable to begin planning so young. Some individuals may not have the means to start retirement planning until they reach age 50—and for those individuals, we have a different piece of advice: Better late than never.
The truth is, it is more than possible to start planning and saving at age 50, and to be able to enjoy a happy and financially stable retirement. There are even some IRS provisions for those playing “catch up.” The question is, how can this be accomplished?
Setting Practical Goals
The first step is to set goals. At what age would you like to retire, and how much money will you need to save in order to make that happen? Some studies indicate that retirees replace roughly 55 percent of their income during retirement with personal savings and Social Security. What this means is that you may have to live on 45 percent less income than you’re making now—but is this feasible?
Setting savings goals is important, but make sure you are being realistic about how much you can live on, as well as how much you will need to spend on ongoing medical expenses. Moreover, it is increasingly uncommon for people to downsize when they retire; many actually spend more during their retirement, not less. Again, the point is simply that reasonable, realistic goal-setting is important, so begin with some earnest reflection and financial forecasting.
Of course, engaging a financial planner to assess and confirm your calculations, and to help you set prudent savings goals, is also recommended. A financial planner will be able to tell you whether your retirement savings plan makes sense or not, which can be invaluable.
Playing Catch Up
It is also important to take advantage of the different provisions available for nest egg “catch up.” Those who have reached the age of 50 can actually make some additional contributions to their retirement saving plans, ensuring they are able to meet their retirement goals.
The specifics of this vary by plan. Take the IRA, for example. Generally speaking, individual investors are allowed to contribute the lesser of $5,500 or 100 percent of compensation to their IRA—but once you reach age 50, you can add $1,000 to your yearly IRA contributions.
Similarly, with a 401(k), 403(b), or 457 plan, an individual may generally defer $17,500; for the individual past 50, however, another $5,500 can be added to this annual amount.
Timing it Right
A final consideration is the matter of timing. More and more individuals are planning to retire later in life, or else to slide into retirement by working part time for a few years. You may benefit from taking a similar approach: The when of your retirement is as important as anything else.
Again, this is a question to address with a professional financial planner. For more information on setting up a consultation, we invite you to contact our team at your convenience.