Some people start saving for retirement at 50, which is a tad late than other people. However, it’s better to start saving late than not having any savings for retirement at all.
The thought of not having retirement savings is scary but what’s scarier is not doing anything to secure your future. According to a recent survey, only around 60% of Americans are confident that they are saving enough to retire comfortably.
It’s never too late to build your retirement income, but you shouldn’t put it off any longer.
To help you save for retirement by age 50, we compiled five articles that can help you catch up with your retirement savings.
Work Longer If You Still Can
It’s very common to retire and withdraw your Social Security at 62 in the past. But if you put off taking Social Security at 62, you can get around 8% return every year on your lifetime benefit. Waiting for a few more years can reward you with bigger Social Security benefits.
Theo Thimou of Clark.com also said that putting off retirement is a good option if you are still physically able and you don’t have enough money saved. You don’t want to outlive your money and become a financial burden to your loved ones later on.
Planning for Long Term Care and Medical Cost
Bryan Knoebel of PersonalCapital.com highlights the importance of thinking about the cost of healthcare during retirement. According to him, retiring early actually increases long term care and medical cost. The estimated cost of spending $275,000 might even go higher. To make things worse, you are not eligible for Medicare until you reach the age of 65, so you need to pay for your care expenses out of the pocket.
Considering this additional expense will make you consider working longer. Another solution is considering getting long term care insurance since the $275,000 estimate doesn’t include long term care expenses. The average cost of a private nursing home is $97,455 while a semi-private room costs $85,775 annually.
Having long term care insurance is beneficial, but Bryan wants Americans to make sure that they are making the right decision by talking to the right people who can give them reasoned conclusions on saving for retirement at 50.
Maximize Contributions to Retirement Plans
The IRS came up with special rules to encourage Americans who are 50 years old and above to boost their retirement savings. According to MoneyTalksNews.com, there are different ways you can take advantages of these special rules:
- Max out IRA contributions. You are allowed to make $6,500 contributions if you are 50 or older according to the IRS rules for IRA accounts. ($5,500 otherwise)
- Max out “catch-up” contributions. People who are 50 and older can contribute an additional $6,000 to a 401(k) account in 2017. This means that you can save a total amount of $24,000 that is tax-free.
- Max out retirement savings contribution. Workers can contribute up to $18,000 to a 401(k) plan in 2017.
- Max out employer’s retirement plan contribution. Take full advantage of the free money if your employer matches a portion of your retirement contributions.
Look for Additional Income
The PennyHoarder.com is suggesting getting a side gig to boost your retirement income like Airbnb if you have a spare room that you can rent out. Considering creating another source of income is advisable nowadays since more people haven’t saved enough for retirement.
You can use this second stream of income to replace the income you divert to your 401(k). Another advantage is tax incentives given to business owners, which allow them to write off expenses like transportation, internet, cellphone, and others.
Make Sure to Write Your Plan
Creating a plan inside your head is different from writing down a plan. It’s imperative to create a retirement budget, devoting the first column to expenses like food, housing, travel, and hobbies. It’s also important to consider inflation for overall expenses, which is expected to go up by 2.4% over the next 20 years according to the Congressional Budget Office.
Regarding, healthcare expenses, it is advisable to create a separate calculation since long term care and medical costs usually have a higher inflation rate. You should match your expenses to guaranteed income such as Security payments, pensions and the annual amount you will withdraw from your savings.
If you see that there’s a gap, consider spending less or staying in the workforce longer to close the gap.