Since your first job — and possibly even before — you’ve been told that it’s important to save for the future. But back then, the thought of being 50 years old was a lifetime away and there were more pressing things to do such as go out with friends, take vacations and enjoy life.
Now, with a mortgage and college tuition responsibilities a reality, plus the fact that you may be caring for aging parents, the picture of your retirement years may not be as rosy as you expected.
The ability to save for retirement after 50 — or at all — is surprising. According to the Employee Benefit Research Institute’s 2014 Retirement Confidence Survey, six in 10 workers report they have less than $25,000 in total savings and investments (excluding their home and defined benefit plans), including 36 percent who have less than $1,000.
Additionally, the Social Security age has increased to 67 for those born in 1960 and after to receive full benefits. Plus there’s the question of whether Social Security will even be available at all. Which means now is the time to make new plans for a longer life.
Thankfully, there are tactics you can take — some conventional and some less traditional — to help boost your retirement savings in the years to come.
1. Know what you need.
The first step to creating any financial plan is to understand what you’re working with and how much money you’ll need to achieve a specific financial goal. If your goal is to save for retirement after 50, sit down with a qualified financial planner to review what you’ve already accumulated in investments, 401(k) and IRA accounts, your current and projected income, plus your debts, assets and other financial obligations.
2. Make catch-up contributions.
In 2014, most people can contribute up to $17,500 to a 401(k), 403(b) or the federal government’s Thrift Savings Plan. Annual IRA contributions are allowed up to $5,500.
Older investors who may have experienced a dent in their retirement savings can still catch up through careful investing strategies. In 2014, those who are 50 and older can contribute an additional $5,500 to their 401(k) for a total of $23,000; and they can add $6,500 to their IRA accounts.
3. Factor in the impact of inflation.
“Market volatility is a ‘shallow risk,’ while inflation is the deep risk,” says James A. Winkelmann, a registered fiduciary. “Moving to so-called safe investments like bonds or annuities could be the most dangerous move someone planning for retirement could make because those investments would be decimated by inflation.”
Investment experts give an example of someone wanting to retire in 20 years with an annual income of $50,000 with an annual inflation average of 3 percent. That means at retirement, you need to have savings that will generate $90,306 in the first year of retirement in order to have the same purchasing power that the initial $50,000 had 20 years prior. Accounting for inflation also means your savings must continue to grow throughout retirement to retain the same financial lifestyle.
4. Get your debt in order.
Nothing can drain financial savings quicker than monthly credit card, car loan and other debt payments. Try to reduce as many loans as you can before retiring so that you will have that much more to live on over the next 20 to 30 years. Of course, if you have good credit, take advantage of the many different perks that lenders offer to their preferred customers.
5. Consider downsizing.
Housing prices are slowly coming back to their pre-real-estate-bust values. So there may be equity in your home if you sell it with an eye for moving to a smaller place. It may also be preferable to live in a less-expensive area of the country if you happen to reside in more expensive cities such as San Francisco, Los Angeles or New York City.
6. Think tax breaks.
If you’re considering downsizing and moving, don’t overlook the states with zero or minimum income tax rates. Some states such as Texas, South Dakota and Nevada do not have any state income tax, which makes your hard-earned savings go that much further.
7. Get rid of the extras.
Every little bit counts in retirement. If you are a two-car family, can you sell one and invest the proceeds while living with one car? Can you go even father and sell both and take public transportation? Think about the rest of the things that you use. Some of these things you may already be doing such as replace your landline with your cell phone, stream Netflix and Hulu instead of paying for expensive satellite or cable TV, go old school and borrow books and magazines from the library instead of visiting the bookstore. Everywhere you’re able to cut spending allows you to reallocate that money toward your retirement — and will reduce your expenses once you do retire.
8. Delay retirement.
Figure out a way to make more income by taking on a job, freelancing or leveraging your skills and experience to pad your savings. “If someone has $50,000 in their retirement account and plans on retiring at age 65 and wants to receive an income of $50,000/yr (excluding Social Security), he or she will have to power save about $2,400 a month to meet that goal, assuming an interest rate of 8% growth. If they extend retirement to age 70, then he or she can decrease that savings down to $1,280 a month,” says Brent Leavitt, healthcare solutions adviser with Nevada Benefits.
9. Expect the unexpected.
Research from the Genworth Financial 2014 Cost of Care Survey shows that at least 70 percent of people over age 65 will need long-term care services and support at some point in their lifetimes. The costs range from a national median rate of $20 per hour for home health care to a national median rate of $240 a day for skilled nursing. Long term care, whether it’s for you or for a family member can wipe out a lifetime of retirement savings in only a few years. Planning ahead by purchasing long term care insurance can help safeguard your savings.
10. Barter or trade services.
Are you a technology whiz or a handyman? Can you tutor, bake or create something beautiful? Think about your hobbies and interests and whether you could barter your skills for something such as green fess on the golf course or a weekend at someone’s time share. Those types of trades can make a difference in how much you’re able to save and spend throughout retirement. Even better, if you live in a popular destination, you can rent out your home (think Airbnb.com). There are bartering trade associations to help match you up with others who could use your services. Remember, however, that the IRS requires you to pay taxes on the value of the bartered services that you receive.
Saving for retirement after 50 can be challenging, but certainly achievable. All it takes is a savings road map, some solid professional advice, an open mind and the desire to make some financial sacrifices along the way.