IF YOU’RE not sure whether you’re going to be able to retire, it could be time to focus, take advice and build a realistic plan, especially you’re older than 50.
You’re not alone. The US government accountability office recently reported that most households approaching retirement have low savings, adding that nearly half of households led by individuals or couples aged 55 and older have no retirement savings accounts at all.
The first step is to define where you really stand financially. Consider speaking with a qualified financial and tax adviser to define your present financial circumstances.
Your conversation should take into account your household income, tax situation, debt and your retirement assets in any form. Reviewing these factors can help shape your decisions about supersizing your retirement plan for maximum safe returns.
While a customized plan is generally the best way to approach shortfalls, here are some general approaches.
Take time to reevaluate your budget. To accelerate retirement saving and investing, you need to find the money first. Non-mortgage debt is a major retirement savings obstacle. Better budgeting can help you find the money to pay off debt quicker. Adjust your spending across the board so you can accomplish this while adding more money to savings over time.
Know that you’re going to need to accelerate your savings. Estimates vary but, generally, after age 50, it’s best to direct at least 10 per cent of your gross income to savings and investments to cover living expenses when you stop working. If you are employed, review your contribution and income limits for the most popular self-directed and tax-advantaged retirement savings vehicles, including:
• 401k, 403b and most 457 plans, which will have a maximum annual contribution limit of $18,000 in 2015;
• Individual retirement accounts – IRAs, both traditional and Roth – which will have maximum “catch-up” contribution limits of $6,500, consisting of the regular $5,500 limit plus $1,000 for taxpayers aged 50 or older by the end of the year.
If after all this effort you’re still not able to find enough money to put away, consider making a greater effort to earn more income. Many individuals boost their savings through a second job or freelancing from home.
Consult qualified financial and tax professionals to make sure you’re handling this extra income correctly from a tax perspective and putting it in investments that make sense for you.
Downsizing to a smaller home in a lower cost-of-living destination or moving in with friends or family at minimal costs may provide additional retirement savings. But, first, consider what you might get for your home.
If you are able to sell a primary residence at a significant profit – above $250,000 for a single taxpayer and above $500,000 for married taxpayers filing jointly – speak to a tax professional about ways to avert a significant tax liability.
Finally, put proper financial safety nets in place. Start an emergency fund so you won’t be forced to dip into savings to cover unexpected expenses. And don’t forget insurance – adequate property and casualty, health and disability insurance can protect your retirement nest egg from significant risk.
Bottom line: Building a retirement fund after age 50 is challenging but not impossible. Take solid tax and financial advice, start downsizing immediately and don’t forget critical financial safety nets.
Nathaniel Sillin directs Visa’s Practical Money Skills For Life financial education programs. Follow him on Twitter at twitter.com/PracticalMoney. His articles are intended to provide general information and should not be considered legal, tax or financial advice. Always consult a tax or financial adviser for information on how the law applies to your individual financial circumstances.