![Planning for Youth: A Roadmap to Retirement](https://i2.cdn.turner.com/money/dam/assets/141010184554-planning-next-retirement-roadmap-00001924-1024x576.jpg)
If you’re approaching retirement age and your savings are looking a little low, you’re not alone. According to a study by the Insurance Retirement Institute, forty-six percent of baby boomers have nothing saved for retirement, meaning nearly half of those approaching retirement will need to increase their savings if they don’t want to work for the rest of their lives. .
The bad news is that if you’re in your 50s and just starting to save now, it’s going to be a tough road to save enough for a comfortable retirement. The good news is that it can be done, and even if you can’t save $500,000 by age 65, you can still save a sizable chunk of change — which is a lot better than nothing.
Regaining momentum after a late start
One advantage workers in their 50s have over younger workers is the ability to catch up on 401(k) and IRA contributions. If you are under age 50, the 2018 annual contribution limits are $18,500 for a 401(k) and $5,500 for an IRA. But for those 50 and older, the annual limits are $24,500 and $6,500.
While this is a great benefit worth taking advantage of if you can, if you’re struggling to save for retirement, suddenly starting saving nearly $25,000 a year isn’t very feasible. In this case, the best thing to do is to identify what you can save, set a goal for yourself, and stick to it.
The first step is to create a detailed budget for all of your monthly expenses to see where your cash is going and how much money you have left at the end of the month. This is also a good time to see where you can make cuts. Be honest with yourself here and decide how important these expenses are compared to retirement. Ask yourself if you have to eat out every week, or if you really need to take the family on a nice vacation every summer. If you’re particularly focused on saving, you might even choose to downsize your home, potentially saving hundreds of dollars each month on your mortgage.
Once you know roughly how much you need to contribute to your retirement fund each month, you can start crunching some numbers. Retirement calculators can help you estimate how much you will have saved in retirement and how much you may need to save before retirement. Keep in mind that these numbers are just estimates, but they can give you a rough idea of your situation and how long your savings will last.
Don’t be discouraged if your numbers aren’t where you want them to be. Saving is hard work, and beating yourself up for not starting saving sooner won’t make it any easier. If you’ve cut your monthly expenses as much as possible but are still having trouble saving, you have other options.
Make full use of social security
One option to consider is to delay receiving Social Security benefits, which would result in an increase in the size of your monthly check. You can start receiving benefits as early as age 62, but you will receive more benefits for each year you delay beyond your full retirement age (FRA), the age when you are entitled to receive 100% of your benefit amount. For example, if your FRA is 67 and you wait until age 70 to take it, you will receive an additional 24% on top of the full 100% to which you are entitled.
If you’re already strapped for cash during retirement, this extra money could make a big difference. For example, assuming your FRA is age 67, the full amount you are entitled to receive (or the amount you would wait until age 67 to receive) is $1,200. If you delay taking it until you turn 70, you’ll receive $1,488 per month. An extra $288 a month might not seem like a significant difference, but it adds up to nearly $3,500 a year — which is a lot of money when you’re trying to make every dollar count.
In addition to waiting to collect Social Security, you can delay retirement for a few years and continue working if possible. It’s not the most exciting option, but it can help you save a lot of money in a relatively short period of time. Because not only are you continuing to contribute to your retirement fund while you’re working, but you’re not depleting your savings.
For example, let’s say you are 50 years old, have zero savings, and want to retire at 65. If you contribute $300 per month and earn an annual investment return of 7%, you will have a total of $93,859 saved after 15 years. While that’s a lot of money (and much better than nothing), it may only last you a few years into retirement. However, if you delayed retirement for 10 years and worked until age 75, continuing to make monthly contributions of $300 and earning a 7% return, you would end up with $236,241. If you wait until age 70 to collect Social Security, your benefits will also increase.
If your employer offers matching 401(k) contributions, you’ll earn more by working a few more years. In this case, if your employer matches $300 of your monthly contribution, bringing your total monthly contribution to $600, you would end up with $472,482 at age 75 compared to $472,482 at age 65 Just $187,718 when you retire.
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It’s easy to be tempted to give up on your financial goals when you’re behind on your savings and see retirement approaching. But you can enjoy a comfortable retirement even if you start saving late, because a little planning and determination can go a long way.
CNN Business (New York) First published September 28, 2018: 10:47am ET