Many 50-somethings are at some sort of crossroads in life. Several major events like getting married, having kids or buying a house have already happened to them. Their children are growing up, becoming financially independent and could be headed off to college in the fall or are even beginning to start a family of their own. When expenses start to taper off, it is the ideal time for 50-somethings to take a closer look at their retirement savings and start ramping up contributions, especially if they aren’t on track to reach their goals.
According to MarketWatch, by your 50s, you should have at least four or five times your annual salary saved for retirement. However, most people in their 50s only have an estimated median savings of about $117,000. The good news is your 50s are an excellent time to play catch up. Here are three ways to get back on track to reaching your retirement goals.
One of the most obvious ways to reduce expenses is by downsizing costs. If your kids have all left the nest, you likely have one or more empty bedrooms in your current home. Consider moving to a smaller home in order to avoid paying off a hefty mortgage for a house you’ve outgrown. In addition, a smaller home could help you save on taxes, utility costs and insurance.
The IRS has certain rules that encourage people 50 years and older to ramp up their retirement contributions. Employer-sponsored retirement savings accounts, such as 401(k) and 403(b) plans, allow employees age 50 and older to contribute an additional $6,000 to their accounts, on top of the annual $18,000 maximum. SIMPLE 401(k) plans allow a $3,000 catch-up contribution in addition to the $12,500 maximum. Traditional and Roth IRAs have a maximum contribution of $5,500 and allow an extra $1,000 in catch-up contributions, but Roth IRAs also have income limits to keep in mind.
Practice the Lifestyle
If you plan on retiring within the next 10-15 years, it may be a good idea to start mimicking your future lifestyle. Start by creating a financial plan or budget that reflects what you’ll be living off of in retirement. You’ll save more money and at a faster rate when you reduce spending. Furthermore, living on less also gives you insight as to where your money goes and exactly how much you will need in retirement.
Not sure if your retirement savings are on track to reach your goals? Take our simple two-minute retirement checkup to find out.