If, when you reach your 50s, you’re freaking out because you haven’t saved for retirement yet, don’t panic. Though you can’t expect to match someone who started planning in their 20s, you can still do something about it.
To make up for lost time, act like a 50-year-old and think like a 20-year-old. That means saving and protecting the money you have, as well as using technology, creating additional income streams, and cutting spending.
Understand time is not on your side. You do not have as time to sock away money so you can’t afford to make mistakes. Get some financial guidance, hire someone or see if your company offers a financial wellness program.
1. Save more. When you turn 50 you have an advantage because the IRS allows you to save more money in your retirement plans. Since your 50s can be some of your peak earning years, it’s a great time to max out your accounts. In your 401(k), the maximum salary deferral for an employee is 18,000 for 2017. After you turn 50, you are allowed to contribute an additional $6,000 in order to “catch up.” You can also do an IRA if you qualify. How much can you contribute to a traditional IRA in 2018?
- $5,500 for those age 49 and under
- $6,500 for those age 50 and older
These contribution amounts are the same as they have been for the past few years; however, the income limits that apply to determine if you can deduct all or some of the contribution amount have increased slightly.
I cannot stress enough the importance of maxing out your retirement plan options.
2. Protect your income. In your 50s, protecting your earning potential is vital to retirement planning — you can’t afford expensive medical bills on top of lost wages. A lot of companies automatically offer disability insurance as part of your benefits and others offer it and you pay the premiums. Either way, review the employer’s group plan or if need be look into an individual plan. If you can afford it, consider purchasing it and understand the policy to make sure you have the best coverage for your individual circumstances. And shop around, pricing on these plans vary.
When you reach age 55, your HSA “catch-up” contribution kicks in. In 2017, if you have a high-deductible medical plan, you can invest $3400 in your HSA (Health Saving Account Plan) or $6,750 in your family plan. At age 55, you can invest an additional $1,000.
3. Create multiple income streams. Look for ways to create additional income streams to bring in cash to boost investments now and supplement retirement later.
Some suggestions: Write a book or course, do a webinar, or start a blog. Teach at a local college once a week or a month. Do you have a business idea that you can work on during your down time. Can you do consulting, or be paid for your expert opinion? At this point in your life you have the experience to monetize so start a side gig.
Get a roommate or rent out your place when you go on vacation. For years when I take a month long vacation in the summer I do a home swap. This saves several thousand a year and offsets the cost of my vacation. I also have friends who are empty nesters and rent out a room in their home for extra income. Check out sites such as homeaway.com and AirBnb for short term rentals.
4. Track your spending. In order to save more you need to know how your money is currently being spent. Track it using an app like Mint. Once you know where it is going you can cut out the waste and invest it.
And remember, better late than never. No matter what your circumstances, you can take positive steps to improve your financial situation.