When it comes to saving for retirement, the sooner you start, the better. But what if you haven’t started saving? Are you ever too old to save for retirement? No! There’s always time to give your retirement savings a boost, no matter your age.
For those in their early 20s, retirement feels a lifetime away, and saving for retirement seems like something that should be done “eventually.”
However, life has a way of making other plans. Decades pass and many Americans find their money diverted to paying student loans, raising children, or affording a mortgage. Retirement accounts are ignored or inadequately funded.
CNBC reports most Americans want to retire by 67, yet nearly 40% of those in the 60 to 69 age bracket have less than $100,000 saved for retirement. https://www.cnbc.com/2020/01/23/heres-how-much-americans-have-saved-for-retirement-at-different-ages.html
If you’re behind in saving for retirement, there are four steps you need to take to get yourself on track.
1.) Understand Your Needs
The amount of money needed for retirement varies by individual, and you’ll need to take into account your own circumstances when figuring out an annual dollar amount. However, two traditional methods of determining a retirement amount include the “Multiply by 25” and “4 Percent” rules. https://www.thebalance.com/dont-confuse-these-two-retirement-rules-of-thumb-453920
With the Multiply by 25 rule, you estimate how much money you will need in retirement by multiplying your desired annual income by 25. By that rule, an annual income of $40,000 would require a $1 million retirement portfolio. ($40,000 x 25 equals $1 million)
The 4 Percent Rule offers a guide to how much you can withdraw from your retirement account annually without cutting into your investment principal. A retiree with $500,000 in their account should withdraw $20,000 ($500,000 x 0.04 equals $20,000).
The Multiply by 25 and 4 Percent rules don’t take into account other income sources you may have, including pensions, rental property, or Social Security. (The Social Security Administration offers a Retirement Calculator to help you better estimate your future benefits.) https://www.ssa.gov/myaccount/retire-calc.html
An analysis of your entire financial standing can help you better determine your retirement needs.
2.) Maximize Contributions
If your retirement accounts are lagging, now’s the time to catch up. Increase your 401(k) or other retirement plan contributions to the maximum amount allowed.
The maximum amount you can contribute is adjusted annually based on inflation. In 2020, it’s $19,500 for anyone under the age of 50. For those 50 or older, an additional catch-up contribution of $6,500 is permitted, meaning you can contribute $26,000 to your plan. https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19500-for-2020-catch-up-limit-rises-to-6500#:~:text=Highlights%20of%20changes%20for%202020,increased%20from%20%2419%2C000%20to%20%2419%2C500.
While compounding interest works best the earlier you start saving for retirement, you can still reap the benefits at any age. Later contributions still have time to grow and contribute to your financial and psychological peace of mind.
3.) Protect Yourself With Insurance
Medical issues are the No. 1 reason Americans file for bankruptcy. An unexpected medical expense or disability can eat through your savings or drain your retirement accounts.
Protect yourself from financial calamities with long-term care insurance and/or hospital indemnity insurance. Ensure your family’s financial security with whole or term life insurance.
4.) Delay Retirement
While Americans may want to retire in their mid-60s, staying on the job longer and postponing retirement is one of the most effective ways to boost your post-career standard of living.
The Social Security Administration notes the longer you delay claiming your retirement benefits, the more you receive. For example, they explained, a worker with a $1,000 benefit at her full retirement age of 66 would receive $750 a month if she starts at her benefit age of 62, or $1,320 a month if she delays until age 70. https://faq.ssa.gov/en-US/Topic/article/KA-03391
In the recent Stanford University study “The Power of Working Longer,” researchers concluded postponing retirement is often more beneficial than increasing your savings rate, noting “career length is a powerful determinant of the standard of living in retirement.”
Their research showed “… deferring retirement by one year allows for an 8 percent higher standard of living for a couple and the subsequent survivor. The effect compounds for two, three, and four-year work extensions.”
Bankers Life Is Here For You
At Bankers Life, we want to help guide you through the retirement planning process. Contact us to have a Bankers Life investment professional review your portfolio today.
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