Many retirement savers find themselves with less than they would prefer. Perhaps they have saved less than they expected. Maybe they have saved but have not experienced the returns had hoped for over the course of building their assets. Some approaching retirement recognizes that they may have underestimated the lifestyle they would like to achieve in retirement and hope to accomplish more than previously planned for. These are all common reasons why many savers hope to better their retirement. What steps can you take to improve your chances of a successful retirement?
Use catch-up contributions. Many retirement savers are unaware of the additional catch-up contributions they are allowed to make starting in the year they turn 50. For 2018, for example, a participant 50 years of age or older can contribute an additional $6,000 per year beyond the $18,500 standard contribution limit. Those 50 or older contributing to traditional or Roth IRA accounts may also make an additional $1,000 catch up contribution beyond the standard $5,500 limit.
Take advantage of your company match. You may be saving in a number of ways while also paying down debt. Sometimes it can be difficult to prioritize where your savings should go, but there is one rule of thumb that makes sense most of the time: Be sure your contribution to your company plan is at least as much as the company match. Putting money elsewhere when you are not contributing up to the full amount of your company’s match is leaving money on the table. There is one quick piece of information you should understand about your company match: it will always go in as a tax-deferred contribution, even if your own contribution it is matching is an after-tax Roth contribution. If your plan allows Roth contributions and you have a particular balance between Roth and Traditional contributions, consider upping the portion you put in as Roth since it will be balanced by the pre-tax status of your company’s match.
Delay retirement. Working longer can increase the contributions you make to your retirement account while also delaying withdrawals. It may also potentially increase the amount you receive in Social Security by delaying to at least full retirement age or even deferring until age 70. Check your own estimated benefits at www.ssa.gov by logging in or creating an account. You may be surprised at the difference in your benefit by delaying. If you do decide to hold off on Social Security, be sure to also examine the pros and cons of opting for Medicare Part (notably Part B which has a premium payment) while still receiving company health insurance. Your benefits representative at work may be able to provide useful information on this decision.
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Consider part-time Employment. You may wish to gradually reduce your workload rather than retiring all at once. Depending on your profession this could mean simply reducing your hours at work or working in the same field as a contractor or consultant. You may even decide to work a limited amount in a different field you enjoy. In addition to the added income you can receive, this may allow you to rely less on your portfolio, allowing those funds to grow or potentially delay social security for an increased benefit. Beyond the financial benefits, many retirees find that they didn’t necessarily want to “stop working,” but are enthused by having more control over the amount and type of work they choose to do.
Reevaluate your portfolio’s allocation. Many seniors invest conservatively as they approach retirement. This makes sense. Someone with five years remaining until retirement will invest much more conservatively than a recent graduate in their first job, but it is possible to take this too far. Those approaching or even already in retirement should consider the effect inflation may have on their investments and consider investing to keep up with the cost of goods and services. They may mean continuing to invest a portion of your portfolio in equities.
Reduce debt as retirement nears. Reducing debt can increase the amount you eventually have available to save or spend on a monthly basis. While all debts are not created equal, you will want to consider aggressively reducing debts with high interest rates and no tax advantages such as credit card balances prior to retirement.
Discuss your financial situation with children. You may be used to providing occasional or even ongoing financial assistance to your adult children or other family members. As you reach retirement, you may wish to set the expectation that in order to successfully reach retirement you will not be able to continue to do so. Your children by definition have a greater time frame to save for retirement than you do. Your children may benefit from your savings later once inherited, but they may need to adjust their expectations while you are leading up to and eventually in retirement.
Consider professional guidance. A qualified financial professional can provide useful advice regarding your retirement savings and potential future income. This can include an evaluation of your portfolio, social security and how any decisions are affected by tax and estate planning concerns.
