If you're crossing the half-century mark and haven't initiated your retirement savings, don't fret. There are feasible solutions to potentially catch up and retire around the same time as your counterparts.
The crucial step is to begin as soon as feasible, maximize contributions within the limits, invest your money prudently, and bypass the common challenges associated with this age bracket.
Retirement plan annual contributions have a cap, but this limit increases as you hit your 50s, often known as 'catch-up contributions,' considered among the benefits of reaching this age milestone.
For instance, in the tax year 2025, you can enjoy not only the standard contribution limit but also avail of the additional catch-up limit. This means you can inject $8,000 into an IRA instead of $7,000, and $31,000 ($34,750 if you're between 60 to 63) into a 401(k) rather than $23,500. Over time, these bonus provisions can aggregate substantial differences.
In order to retire with a respectable income, you should aim to contribute as much as you can, optimally maxing out employer-sponsored plan contributions, which often come with matching funds from your employer. At the same time, adding as much as possible to a separate IRA, and potentially an HSA for healthcare expenses, is advisable.
Certainly, setting aside around $40,000 annually for retirement can be challenging for most individuals. To help manage this, financial advisors offer tips on identifying extra income sources and trimming nonessential expenses and high-interest debt without stretching your budget too thin.
How you invest is paramount too. Being a beginner at 50 doesn't mean you should opt for exceedingly ambitious and speculative investments. Sensible investments should be the aim, even if it requires waiting slightly longer to retire due to missed targets.
Estimating future costs should account for inflation, as today's $1 will be worth less when you retire. Healthcare is an area that requires focused attention, considering that its costs tend to escalate during retirement. Budgeting for these additional expenses and weighing the advantages and disadvantages of having an HSA or purchasing suitable insurance policies are crucial strategies to handle future medical bills.
Above all, avoid tapping into Social Security benefits when they become attainable at the age of 62 unless absolutely essential. Deferring benefit claims until you're 70 will result in higher monthly payments. A crucial bonus to your retirement income, especially if you've begun saving later in life.
Understanding the tax implications of different retirement accounts is vital. Traditional IRAs and 401(k)s offer current tax deductions but are taxed during retirement, whereas Roth accounts, funded with after-tax dollars, allow tax-free withdrawals.
Starting to save late is better than not saving at all. By maximizing contributions, utilizing catch-up provisions, and investing wisely, you can still achieve a comfortable retirement at a reasonable age, even if you kick-start your savings plan at 50.