Turning 50 is big news. And for some reason, it’s a turning point for a lot of us. When we turn 50, we start to take a deeper look at our lives. Where we are, where we’ve been, and where we’re going. During this introspective wake-up call, many of us realize we haven’t been saving for retirement as we should have—and now the pressure’s on. The clock’s winding down. Is it possible to catch up?
Thankfully, with some grit and determination (along with the right guidance), it usually is possible to get back on track. By implementing the following tips—and not waiting one second longer—you’ll be well on your way to a secure retirement.
Maximize Your 401(k) And Roth IRA Contributions
Fortunately, right when we realize we’ve fallen behind, our friend the IRS, allows us to make “catch-up contributions.”
In 2018, the maximum 401(k) contribution is $18,500 plus an extra $6,000 if you’re over age 50. Depending on your unique situation (i.e., your income and how far you are behind), you may want to consider finding ways to reduce your cost of living to allocate a greater portion of your income to these funds.
As with your 401(k), you should also try to make maximum contributions to a Roth IRA, which compounds tax-free and can be distributed tax-free in retirement (if withdrawal rules are followed). In 2018 the maximum Roth contributions are $5,500 (plus a $1,000 “catch-up contribution”) for those with a modified adjusted gross income less than $118,000.
Use Your Home Equity
If you have a lot of wealth tied up in real estate, you can use it to your advantage. As your kids move out and you’re left with an empty nest, consider downsizing. By selling your house, buying something smaller, and investing the proceeds in your retirement accounts, you can make a huge leap forward in building up your accounts. The earlier you do this, the more time your accounts will have to compound.
However, it’s important to also take market conditions into account. You don’t want to sell your house for less than it’s worth. If you’re waiting for the market to pick back up, an alternative option is to rent out a portion of your empty house and use the extra income to max out your retirement accounts.
Push Back Retirement
This probably isn’t the solution you wanted, but hear me out. Every extra month you work has a significant effect on your retirement account. This is especially true if you’re healthy enough to power through until you turn 70. Working a few years longer can actually have a greater impact on your retirement accounts than if you were to increase your monthly savings when younger. This is because working longer boosts all sources of retirement income, not just savings.
First, you’ll be earning and saving longer. Second, the longer you work, the longer your retirement accounts have to grow (and by this point in the game, the compounding effect will be at full steam). Lastly, the longer you wait to draw from Social Security, the higher your monthly benefits will be (meaning the less you will need to come up with yourself). That being said, it’s probably not what you had in mind, but at least you know the option is out there.
Next Steps
The bottom line is, if you’ve procrastinated with your retirement savings, all hope is not lost. It’s not an ideal situation, but there are many different strategies to catch up. The important thing is to start now and take advantage of all your opportunities. If you’ve fallen behind, there’s no time for mistakes. Because of this, your best option is to sit down with a financial advisor who can create a personalized plan of attack that covers all your bases. If you’ve waited too long and need help catching up, contact us at Haydel, Biel & Associates at (626) 529-8347 or email me directly at ricky@hbawealth.com.
About Haydel, Biel & Associates
Haydel, Biel & Associates is an independent financial advisory firm serving individuals and families near Pasadena, California. The firm was founded in 2004 by Chris Haydel and Ricky Biel with a desire to provide unbiased, client-centered, community-based financial advice. Together, they have built a practice that has grown into a family of caring, smart professionals committed to blending proven investment methodologies with creative financial technologies that make it easier than ever to accomplish your goals. They strive to keep things simple and fun to give their clients peace of mind and alleviate financial stress. HBA Wealth takes care of their clients’ needs first and foremost and goes the extra mile to make their clients’ finances grow. To meet and see how the HBA Wealth team may be able to help, contact them today at (626) 529-8347 or email Ricky directly at ricky@hbawealth.com.