Close Your Retirement Savings Gap With These Tips
Filed under: Financial Planning, Retirement
Are you approaching retirement and worried that you’re behind on your savings? You have company. A recent report from the Insured Retirement Institute found that 40 percent of baby boomers have no retirement savings. Nearly 70 percent have no pension or defined benefit plan. And almost 60 percent have less than $250,000 in retirement savings.1
Saving for retirement is always a challenge. You have other expenses and financial needs that may seem more pressing. You may be struggling with debt, or you could be paying for your child’s education. You may feel that those items are more important than retirement.
If you’re approaching retirement, however, you may not have much time left to save. Now may be your last, best opportunity to take action and close your savings gap. Below are three tips to help you get started. You also may want to meet with a financial professional to help you develop and implement a catch-up plan.
Wait to file for Social Security benefits.
It may be tempting to file for Social Security benefits as soon as you’re eligible at age 62. However, that may not be the wisest course of action. Your retirement benefit amount is largely based on your age at the time you file. If you file at your full retirement age (FRA), which is between 66 and 67 for most people, you’ll get your full benefit amount. If you file before your FRA, you could see your benefit permanently reduced as much as 25 percent.2
You can actually delay your filing past your FRA, and there could be good reason to do so. Social Security offers an 8 percent benefit credit for each year you delay your filing past your FRA, up to age 70. For example, if your FRA is 66 and you wait until age 70 to file, you could see your benefits increase by a cumulative 32 percent.3 That extra income could erase much of your savings gap.
Make catch-up contributions to your 401(k) and IRA.
If you’re like most people, you use a 401(k) or an IRA as your primary savings vehicle. These accounts are powerful savings tools because they offer tax-deferred growth. Once you reach age 50, you can put even more money into these accounts using something known as catch-up contributions.
In 2018 you can put as much as $18,500 into a 401(k) plan. If you’re age 50 or older, however, you can put in an additional $6,000 in catch-up contributions. Similarly, the standard contribution limit for IRAs is $5,500, but you can contribute an additional $1,000 if you are 50 or older.4
Look for areas to cut in your budget so you can take advantage of these extra contributions. By putting more money into your tax-deferred accounts, you may be able to overcome your savings gap.
Scale back your retirement plans.
If you’re already saving as much money as possible and still have a savings gap, you may need to explore other options. One strategy is to scale back your projected spending. If you spend less money in retirement, that reduces the amount you’ll need to save.
You could downsize to a smaller, more affordable home or move to an area with a lower cost of living. You could cut your planned spending on things like travel, shopping or hobbies. Perhaps you could eliminate debt to cut your spending. You also may want to consider part-time or seasonal work in retirement. The extra income could help you overcome your income gap.
Ready to close your savings gap? Let’s talk about it. Contact us today at Ambrose Financial & Insurance Services. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
1https://www.myirionline.org/docs/default-source/research/boomerstrategyoct2015.pdf?sfvrsn=2
2https://www.ssa.gov/planners/retire/retirechart.html
3https://www.ssa.gov/planners/retire/delayret.html
4https://www.forbes.com/sites/ashleaebeling/2017/10/19/irs-announces-2018-retirement-plan-contribution-limits-for-401ks-and-more/#49e4c87825ac
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17698 – 2018/5/30
