Are you close to the age of retirement but don’t have enough savings in your retirement fund? You’re not alone.
According to a research from the Insured Retirement Institute, the youngest baby boomers turned 54 years old this year but despite being so close to the retirement age, 46 per cent of them don’t have any savings stashed away for old age. This means that more than half of the soon-to-be retiring baby boomers need to supercharge their savings or be prepared to work for the rest of their lives.
If you’re in your 50s but only recently decided to start saving, we have good and bad news for you.
The bad news is that you’ll have a difficult road ahead in terms of finances in order to live a comfortable post-retirement life. However, the good news that it’s still possible to become a millionaire by the time you turn 65, but only if you’re ready to invest a decent chunk of your earnings into your future.
Supercharging Your Retirement Fund
People in their 50’s have a number of advantages like IRA contributions and catch-up 401(k), benefits that aren’t available to younger employees. 401(k) is a company provided retirement plan available to all workers despite their age or income level, whereas IRA (individual retirement account) is a tax-free retirement account used for investing in an array of financial products such as bonds, stocks and mutual funds.
Both 401(k) and IRA accounts have a contribution limit of $18,500 and $5,500 per year, respectively. But for people over the age of 50, the limits are increased to $24,500 and $6,500 so that they can catch up with their savings even if they’re starting late.
These catch-up benefits are great to turbocharge your retirement savings but if you’re already having hard time putting away money towards your retirement fund, it won’t be easy to start saving $25,000 annually all of a sudden. The best thing to do in this scenario is to create a budget and a savings plan to determine how much money you can easily contribute to your retirement accounts. Once you’ve created a plan, stick to it and watch your investments grow over the next several years.
Creating a Budget
Creating a budget is the first step towards saving money for retirement. See where your money is going, how much you need for monthly expenses and where you can make cuts to reduce spending.
This is a good time to evaluate your expenses and ask yourself honestly if they are more important than enjoying a comfortable retirement. If most of your paycheck goes towards dining out or taking vacations, it’s time to cut back on these expenses too by eating out less frequently or saving all your holiday plans for after you retire. If you’re really serious about saving, you might even want to slash your mortgage expenses by downsizing to a smaller home.
Once you’ve calculated how much you can save for retirement every month, it’s time to do some number crunching to determine the amount of savings you’ll have once you’re 65. There are several online retirement calculators to help you with this estimation. It’s important to remember that the numbers you get are simply to give you a rough idea how long your retirement savings will last.
If the numbers you get aren’t what you expected them to be, don’t lose hope. There are still a couple more options to give your savings a boost.
Making the most of Social Security
Another way to turbocharge your savings is by delaying you Social Security benefits which will accumulate over time, resulting in fatter monthly checks. Most people start taking out socials security around the age of 62 but the longer you wait to claim the benefits the more money you’ll be entitled to. If your FRA is 65 but you wait until 68 to claim, you’ll receive 25 per cent additional benefits on top of the monthly amount.
Another way to boost your savings is by delaying retirement by a few years and working for as long as you can. This isn’t the ideal scenario but it will help your retirement fund grow even more and you won’t be depending on your savings just yet.