The numbers are shocking, and there’s a good chance they apply to you.
Research shows that 30 percent of those 55 and older have no retirement savings, and 26 percent have only $200,000 saved for their golden years. That’s a problem, since for a retiree to produce $40,000 a year after leaving the workforce, he or she will need a $1.18 million nest egg to fund a 30-year retirement.
The good news: By following a few sound strategies, some admittedly easier than others, you can beef up your coffers before you reach retirement so you can enjoy your leisure time worry-free.
1. Be Strategic When Paying For College
For those with children looking to attend a four-year college or university, the average cost of one year of tuition and fees is a whopping $9,410 (for those attending in-state public secondary schools) to $32,410 (for those getting a degree at a four-year private school), according to the College Board. Funding that sort of expense can be hazardous to retirement savings.
“College is expensive and it isn’t that it’s more important than retirement,” says Jason Flurry, President, Legacy Partners Financial Group, LLC. Instead, “for most people it just comes first. If they can get their college plan right, it usually adds a great deal of confidence and certainty to their retirement plan too.”
Dipping into retirement savings shouldn't be your first line of action. One way to save on tuition? Found money. This includes college-, state- and federal government-grants, which don't need to be repaid. Most are awarded based on a student’s financial need which is decided by your reported income on the Free Application for Federal Student Aid.
Another option is to research and apply for private scholarships from companies, nonprofits and local community groups.
“There are billions of dollars of merit aid and need-based aid available every year to help make college more affordable,” says Flurry, “People owe it to themselves to both learn how to pay only their fair share of the college bill and how to build a game plan that allows them to pay for college without changing their lifestyle, taking on debt, or jeopardizing their retirement.”
2. Double-Down On Catch-Up IRA and 401K Contributions
You’ve likely heard this before, but it bears repeating, especially as you navigate your ‘50s.
“The easiest way to quickly build retirement savings is to contribute as much as possible to an employer retirement plan,” says Becky Krieger, CFP, CPA, Managing Director, Client and Community Outreach, Accredited Investors Wealth Management.
For those 50 and older, this means taking advantage of so-called catch-up contributions, which allow for additional dollar amounts to be stashed away each year in retirement accounts.
Internal Revenue Service guidelines call for the following:
- Those with a 401(k), 403(b) and most 457 plans may sock away an additional $6,000 a year, bringing their total pre-tax contribution to $25,000.
- Those that contribute to an IRA can add an extra $1,000 a year, for a total of $7,000 in yearly after-tax contributions.
As a bonus, many employers will match contributions made to a 401(k), 403(b) and 457 plan, potentially bringing your yearly nut well above the IRS limit, since employer matches are counted separately.
Concerned you’ll feel the pinch if you up your contributions? You can avoid that by having your increased contributions automatically taken out of your paycheck at a rate that adds up to the maximum.
“The more someone can automate monthly savings the quicker they can grow their nest egg,” she says. “Also,” if you’re not contributing the maximum, “every raise in salary can be seen as a great opportunity to increase a monthly savings plan.”
3. Examine Your Budget -- Or Create One If You Don’t Have One
If you get a shock when your credit card bill comes each month, Krieger has advice for you.
“It’s very common for people to live paycheck-to-paycheck and to not have a grip on where their money is being spent,” she says. “But in my experience, digging in and understanding expenses, budgeting and prioritizing savings has been the best way to quickly make progress toward retirement goals.”
The rub? For households that are raising children, prioritizing retirement savings can seem like a particularly difficult challenge. Understanding this, parents in their 50’s should use this time to assess how expenses will change as they become empty nesters and experience added cash flow as children leave the home.
But rather than splurge on a pricey vacation or unnecessary household goods, “capitalize on those costs that were once dedicated to meet children’s expenses,” says Krieger, “and automatically begin allocating to savings. This methodology applies to a financial gift or bonus received as well.”
She says folks in their 50s should also be working on eliminating debt prior to retirement. For many this means tackling credit card debt first since the interest paid on outstanding balances is non-deductible.
Then, “paying extra toward a mortgage may be wise in order to reduce living expenses while in retirement, thus reducing the amount of savings needed to meet retirement expenses.”
4. Make Divorce A Last-Ditch Option
The divorce rate for U.S. adults aged 50 and older has near doubled since the 1990s, according to the Pew Research Center.
And these splits are costly. The fees incurred include bills for attorneys or mediators, and court costs, plus fees to divide assets such as real estate or a shared business.
“Divorce is costly and many of the financial decisions people make during a divorce and immediately afterward are not made with sound financial principles in mind,” says Flurry.
This might include splitting assets, and selling off property and investments. Retirement plans are often divided and in many cases cashed in to help pay off debt or provide a financial means to start life over again, says Flurry.
“Avoiding divorce may be difficult or even impossible,” says Flurry, “but finding ways to make a relationship work can be one of the best investment you ever make - in more ways than one.”