When you turn 50, retirement starts to seem less abstract.
In terms of retirement planning, a 50th birthday can act as a wake-up call. It
may offer a powerful reminder to trailing-edge baby boomers and Gen Xers, many
of whom are wrapping up their second act with inadequate retirement savings for
their third. According to the latest Wells Fargo Middle Class Retirement Study,
the median monthly retirement savings contribution by middle-class Americans
aged 40-49 is $200 and the median contribution in the fifties is even less:
$78, working out to $936 per year.
Just as alarming, 50% of the survey respondents in their
fifties said they would ramp up their retirement savings efforts “later” to
make up for what they weren’t doing now. “Later” equals your sixties and your
sixties will likely be when you retire. So what decisions could possibly
strengthen your retirement nest egg?
Make those catch-up retirement
plan contributions. They may seem inconsequential in the big picture, but
when you factor in potential investment returns and the power of compounding,
they really aren’t. You can start making catch-up plan contributions in the
year in which you turn 50. If you only have a five-figure retirement savings
sum at age 50, your retirement savings may double (or more) by age 65 through
consistent inflows, compounding and catch-up contributions and decent yields.
For 2015, there is a $1,000 catch-up contribution limit for
IRAs and a $6,000 catch-up contribution limit for 401(k)s, 403(b)s, most 457
plans & the federal government’s Thrift Savings Plan.
Explore ways to save
even more. You could create a solo 401(k) or a SEP-IRA. If eligible, you
can defer up to $53,000 into those plans for 2015. Also, SIMPLE plans (to which
both employers and employees may contribute) have contribution limits of
$12,500 next year with a $3,000 catch-up limit.
Slim down your debt.
Retiring debt-free is a remarkable financial gift that you can give to
yourself, and you ought to strive for it. You will always have some consumer
debt and you may incur medically-related debts, but paying off the house and
avoiding large, new, “bad” debts should be high on your financial to-do list.
If accelerating or pre-paying your mortgage payments makes sense, see if your
monthly budget will let you do so; be sure you won’t face those rare prepayment
penalties. Once your residence is paid off, you might consider living in a
cheaper, tax-friendly state – another way to retain more money.
Look at LTC &
disability insurance. This comes down to “how much can you afford to lose?”
While long term care coverage is rapidly growing more expensive, it still may
be worth it in the long run as medical and scientific advances make the chances
of lingering our way out of life more common. Should something impede your
ability to earn between now and retirement, disability insurance could provide
relief.
Consider revisiting
your portfolio’s allocation. Since 1964, there have been seven bear
markets. On average, they lasted slightly more than a year. On average, it took
the S&P 500 3.5 years to return to where it was prior to the plunge. If you
are 50 or older, think about those last two sentences some more. If your
portfolio is allocated more or less the same way it was 30 years ago, revisit
those percentages in light of how soon you might retire and how much you can’t
afford to lose.
These are just some suggestions. For more, tap the insight
of a seasoned financial professional who has known and seen the experience of
saving during the “stretch drive” to retirement.
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