According to a recent report from the Insured Retirement Institute, many baby boomers are behind on their retirement savings. The study found that 40 percent of baby boomers have no retirement savings. Nearly 70 percent have no pension or defined benefit plan. And almost 60 percent have less than $250,000 in retirement savings.1
Retirement is a difficult financial challenge for nearly everyone. You may have other expenses, like debt or education costs, that might seem more pressing. You might think that you have plenty of time to save for retirement. However, as you approach retirement, your window for saving is quickly closing.
If you’re behind on your retirement savings, now is the time to close the gap. The earlier you start, the more options you may have available. Below are three strategies that can help you catch up on your planning and erase your savings gap:
Wait to file for Social Security.
It’s tempting to file for Social Security benefits as soon as you’re eligible. However, that may not be the wisest strategy. If you file for benefits before your full retirement age (FRA), you could see a benefit reduction of up to 25 percent. The FRA for most boomers is between their 66th and 67th birthdays.2
You don’t have to file for Social Security benefits at your FRA, though. In fact, you can delay your filing past your FRA. By waiting past your FRA, you could significantly increase your benefit amount. Social Security currently offers an 8 percent benefit credit for each year you delay your claim past your FRA until age 70.3 If your FRA is 66 and you wait until age 70 to file, you could increase your benefit by 32 percent. That increased income could be enough to help you overcome your savings gap.
Take advantage of the catch-up contribution rule.
If you are age 50 or older, you can take advantage of a unique rule that allows you to put more money in your qualified accounts. It’s called a catch-up contribution.
In 2018 you can contribute as much as $18,500 to a 401(k) and up to $5,500 to an IRA. If you’re over 50, however, you can put even more money into your qualified accounts. Under the catch-up contribution rules, you can put an additional $6,000 into your 401(k), bringing your total allowed contribution up to $24,500. You can also put an additional $1,000 into an IRA, for a total maximum contribution of $6,500.4
Look for areas to cut in your budget so you can take advantage of these extra contributions. By putting more money into your tax-deferred accounts, you may be able to overcome your savings gap.
Cut back your expenses in retirement.
If you you’ve explored all other options and are still short of where you need to be for retirement, it may be time to consider other changes. For example, look for ways to lower your spending in retirement. That will reduce the amount of money you need to save before you stop working.
You could eliminate any outstanding debt before retirement. Maybe you could downsize to a smaller home or even move to an area with a lower cost of living. Perhaps you could look for more affordable ways to enjoy things like travel or other hobbies. Be creative and open-minded as you examine your projected retirement budget.
Ready to close the gap on your retirement savings? Let’s talk about it. Contact us today at UBC Retirement Income Planning. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
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