If you are approaching retirement age and you are nowhere near where you need to be to retire comfortably, you may be getting a bit nervous. Fortunately, there are steps you can take to make up for a late start on your retirement savings.
1. Work With a Financial Planner
Even under the best of circumstances, only about a third of people who try to plan for retirement on their own are successful. By comparison, about 70% of people who work with a financial planner can reach their retirement goals. Working with a financial planner is particularly critical for people who have gotten off to a slow start on their retirement savings.
A financial planner, such as the professionals at Summitry, can help you determine the best strategies to make up for lost time on your retirement savings. Rather than wasting more time trying to figure out how to do it yourself, it can be a wise move to get a pro working on the problem before it gets any worse.
2. Maximize Your Employer’s 401(k) Contribution
If your employer offers a 401(k) match, you should fully take advantage of it. The minimum amount you should contribute to your 401(k) should be whatever percentage your employer will match. Contributing any less than that amount is like turning down free money.
3. Eliminate High-Interest Debt
Many people are tempted to pay off the debts they have with the lowest balances first, but it is usually better to focus on paying off the debts with the highest interest rates. Focusing on eliminating high-interest debt, such as credit card debt, can free up extra money for you to put into your retirement account.
4. Make Catch-Up Contributions
The IRS sets limits on the amount of money you can contribute to your 401(k) plan every year. In 2020 that limit is $19,500. However, people over the age of 50 are allowed to invest an additional $6,000 to a company plan and $1,000 more to an IRA. Taking advantage of these higher limits can help you make up for your late start.
5. Work Longer
Working longer may not be the most appealing solution, but it can go a long way towards extending your retirement savings. Delaying receiving your Social Security benefits increases the payout you receive. Additionally, working longer provides you with more years to make tax-deferred contributions to your retirement accounts. Extending your earning years also reduces the number of years you will need to draw money out of your account, meaning you will need fewer retirement savings.
6. Invest in an Annuity
Annuities provide a guaranteed income stream that can supplement your savings through retirement. This can lower your risk of outliving your retirement funds and bridge the gap between your savings and your expenses.
Getting a late start on your retirement savings can be anxiety-inducing. However, it is important to avoid panicking and begin taking steps to make up for the lost time. With a smart investment strategy and some professional help, you can still reach your retirement goals.