Turning 50 is a big deal, emotionally. But it’s also an important financial milestone. Have you saved enough for retirement?
If you find yourself further behind than you had hoped, there are ways you can “catch-up.”
As financial planners in Tennessee, the team at TrustCore explores 5 strategies that can help you supercharge your savings.
In 2021, the maximum annual contribution limit for a 401(k) if you’re under the age of 50 is $19,500. For an IRA, the limit is $6,000. However, when you turn age 50, these limits increase through catch-up contributions. For an IRA, that means you can contribute another $1,000 for a total of $7,000. For a 401(k), it’s much higher, allowing you to increase your contributions by another $6,500 per year, for a total of $26,000. An employer match adds even more.
By saving for retirement, you can also take care of taxes. While contributions to a Traditional IRA or 401(k) are deductible in the year of contribution, contributions to a Roth account are made with after-tax dollars. You won’t receive an immediate tax benefit, but withdrawals in retirement are tax-free, as long as you hold the account for at least five years.
Are you contributing the maximum amount you’re allowed?
Maybe you weren’t offered a Roth account when you first started saving for retirement. Maybe you were in a higher tax bracket than you are now and you were looking for immediate tax savings. Maybe retirement seemed so far away that you didn’t worry about taxes in your Golden Years. But now, maybe that has changed.
A Roth conversion allows you to transfer the funds you have in a Traditional account into a Roth account, so you can reap those late-year tax benefits at the time of withdrawal. While this strategy doesn’t work for everyone, it can be a smart move for some.
It’s important to note that any money converted from a Traditional account to a Roth account will be taxed in the year of conversion, and this bill can be steep. Talk to a financial planner to see if it makes sense for you.
If you are eligible for Social Security benefits when you retire, the earliest you can start receiving a monthly check is age 62. However, the amount you receive will be reduced. You’ll receive the full amount you’re due at your full retirement age, determined by your birth year. For every year you delay taking your benefits after your full retirement age until you reach age 70, the amount you receive will increase by about 8 percent.
For example, if your full retirement age is 67 (you were born in 1960 or later) and you decide to start taking benefits at age 62, the amount you receive will be as much as 30 percent less than it would have been had you waited until age 67. These reductions are permanent in most cases.
On the other hand, if you waited to take your benefits until age 70, the amount you receive will increase.
While the idea is simple – the longer you wait, the more you’ll receive – there are many other factors that should be considered in your decision, such as your life expectancy, any other income you’ll receive in retirement and if you’re married (staggering your benefits with your spouse can be a powerful strategy).
Talk with a financial planner to determine the right age for your situation.
One of the nice features of getting older is that you may have built equity in an asset over time. If you own a business, for example, you may have considerable equity there. If you own a home, your equity could be substantial.
If you got a late start to your retirement planning, this equity can be very helpful. Talk to a financial planner about converting your equity into cash payments or other investments.
If the strategies above aren’t ideal, consider your options. Retirement is not a one-size-fits-all scenario. Talk to a financial planner about:
If you’re reached age 50, congratulations! If you don’t have a plan for retirement, get started today! There are steps you can take to catch up, but taking action is key.
At TrustCore, we strongly believe that money should be used as a tool to create a life that is fulfilling and meaningful. From the individuals we partner with to the nonprofits we serve, we love getting to know our clients and uncovering their goals. We strive to deliver financial strategies that can support you today and fuel the dreams you want to live out tomorrow.
Wherever you are in your financial planning journey and whatever retirement looks like for you, our team of financial planners is here to help! Get the conversation started.
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