They say time flies when you’re having fun, but that’s also true when saving for retirement. In your 30s retirement felt like a lifetime away, but you’ll celebrate your 50th birthday before you know it, and by then you need a healthy nest egg to retire comfortably in 15 to 20 years. But what if your balance is a little lean? What if your dream is to travel or spend time with the grandkids instead of work? There’s still plenty of time to save.
1. Get Rid of Your Debt Before Retirement
Looking at saving and investing strategies is important, but debt – especially high-interest-rate credit card debt – could wipe out any investment gains. You shouldn’t use your retirement savings to pay off debt, but how can you reign in spending to get to a debt-free lifestyle long before retirement? Don’t accumulate assets only to give it all back in debt payments.
2. Tighten Your Belt
You have to spend less to gain more. One of the best ways is to downsize. That giant home you’re living in with all the bedrooms? Sell it and get something that fits an empty-nest lifestyle while still leaving room for the kids and grandkids to visit. How much could you make on the sale of your home that could go toward paying down debt or contributing more to your retirement accounts? When Should Retirees Downsize Their Homes? can help you see if this makes sense for you.
3. Make Catch-Up Contributions
The Internal Revenue Service (IRS) puts limits on how much you can contribute to your tax-advantaged retirement accounts each year. In 2018 you can put up to $18,500 into your 401(k). This includes employee salary deferrals along with after-tax contributions to a Roth IRA within your 401(k). This is the total for all 401(k) accounts, not a per-account limit. (For more, see 401(k) Contribution Limits in 2018.)
However, the IRS allows you to contribute an extra $6,000 as a catch-up contribution if you’re age 50 or older, bringing the total to $24,500 for 2018. Unlike so many IRS rules, the catch-up rule is as simple as it sounds. If you’re 50 or older you can catch up on funding your retirement accounts.
How about individual retirement accounts (IRAs)? You may contribute up to $5,500 to your IRA in 2018, with a catchup contribution of $1,000 if you're 50+, for a total of $6,500. There may be other IRS rules concerning contributions that apply to you, but you should aim to contribute the maximum each year if you’re behind. (For more, see IRA Contributions: Eligibility and Deadlines.)
4. Up Your Risk
It’s not hard to find advice encouraging you to dramatically lower your risk level in your investments as you get to your 50s, but most planners believe that is too early to retreat to predominantly low-risk assets, such as bonds and cash instruments. You can only up your contributions so much; however, combine that with higher rates of return on what you have and you’ll move much closer to your goals.
If upping your risk profile keeps you awake at night, though, the strategy might not be for you. Talk to a financial advisor and get an opinion on how you can tweak your portfolio for higher returns.
5. Consider Long-term Care Insurance
Don’t spend decades saving for retirement only to pay it all out in medical expenses later in life. Long-term care insurance protects you from such a scenario. Medicare doesn’t cover the cost of long-term care, and Medicaid isn’t an option until you’ve spent most of your savings. Nobody likes buying insurance, but in this case it’s necessary.
The younger you start, the lower your premiums will be. Be aware that long-term insurance premiums are very high; there are some other options that may accomplish your goals at a lower cost. The 4 Best Alternatives to Long-Term Care Insurance reviews the possibilities.
6. Understand Social Security
Social Security isn’t easy to wrap your brain around, so start with this. The longer you can delay taking it, the greater your monthly checks will be. Although you can file for benefits at age 62, waiting until 66 – Social Security full retirement age for the current generation of retirees – will increase them by one-third. Waiting longer ups the amount even more, until you reach age 70, when you must start taking benefits. Is Waiting till 70 for Social Security Right for You? walks you through the choices.
7. Consolidate Accounts
If you switched jobs at least once in your career, you might have multiple 401(k) plans with as many providers. Consolidate them into one account for easier management. There are plenty of options, including consolidation into an IRA. Talk to a financial advisor about the best way to get all or most of your retirement assets under one roof.
The Bottom Line
It’s not too late to retire with enough money to make you feel comfortable as you exit the workforce, but it will probably involve looking for ways to save, upping your contributions and looking for higher returns. Don’t do it alone. Ask an expert for help.