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Help! I’m 50 and I Haven’t Been Saving Enough for Retirement!

What should I do?

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Retirement, saving, money, aarp, sisters
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If you’re like many Americans, you may find yourself realizing that you’re not on-track to retire at 65. After all, the median retirement savings for Americans between age 55 and 64 is only slightly more than $100,000. In an economy where 40 percent of adults can’t cover a $400 emergency, it’s understandable that saving for something far away can feel like the last priority. So if you’re one of the people who hasn’t been saving enough – or at all – you’re not alone. Don’t beat yourself up by dwelling on past money mistakes or sulking in shame or embarrassment. What matters most is getting back on track. Here’s how to do that.

First, you need to create a realistic vision of what your retirement will look like.Will you live in the same house that you’re currently in? Will it be paid off by then? Can you consider downsizing now? If you’re currently spending $1,000/month on mortgage payments, and you downsize to a space that allows you to eliminate that payment, you’ve freed up five figures a year that can be invested instead. Even if you’re renting, moving to a cheaper space will improve your cash flow.

Is there any other way to cut your expenses now? When you’re no longer working, will you spend more time cooking at home? What types of activities will you do? Are you interested in or willing to move to an area with a lower cost of living since you’ll no longer be tied to an office? These are important questions to answer to figure out how much you’ll need and begin planning backwards to determine how much you should start saving.

Once you have an idea of your future expenses, there are three key ways to start maximizing how much you’ll have to spend in retirement.

Catch-Up Contributions in Retirement Accounts
The IRS limits how many dollars you can contribute to accounts like 401(k)s/403(b)s and IRAs. As of 2019, the limits are $19,000/year for 401(k)s/403(b)s and $6,000/year for IRAs. But if you’re 50 and over, they allow “catch up contributions.” That means that you’ll be able to add anadditional$6,000 a year to your 401(k) or other employee plans and an extra $1,000 a year to your IRAs.

Additional Savings Through an HSA
If you have a high-deductible health insurance plan, you’re permitted to have a Health Savings Account that, similar to some retirement accounts, can be used for investing pre-tax dollars and spent later in life after being able to compound interest. If you spend it on qualified medical costs, then your spending will even be tax-free. Once you reach 65, you can spend it freely and only non-medical usage is taxed. But be careful: If you’re under 65, there’s a 20 percent penalty (in addition to income taxes) for spending it on costs that aren’t related to health care.

Consider More Time in the Workforce
Pushing your retirement from age 65 to 70 can have a lot of benefits, outside of just allowing you 5 more years to save:

  1. You’ll be able to maximize your Social Security benefits by waiting until 70 when you can get your largest benefit. This could add about 77 percent to the amount you receive compared to claiming benefits at 62.
  2. You’ll receive 5 more years of your employer’s match on your account contributions (which is free money).
  3. The money you’ve invested will have more time in the stock market to grow and compound. For example, if you start investing at age 50, starting with $0, and you contribute $500 a month and earn 7 percent returns, you’ll have more than $161,000 by 65. But investing the same amount until you’re 70 lands you over $263,000. And investing until 75? $406,000. Time in the market matters, so the longer you can wait to start withdrawing your money, generally, the better off you’ll be.

At the end of the day, it’s important to know that just because you haven’t started saving doesn’t mean you’re doomed. What’s most important is that you get started today. As the old proverb says, “The best time to plant a tree was 20 years ago. The second-best time is now.”