A financial planner was asked recently: "I am 50 and I have never saved for retirement. What should I do?" If you identify with this retirement planning question, listen up.
What not to do if you're in this tough spot? Throw up your hands and groan, "I'll never be able to retire." Sure, you've put yourself in a tough spot. But no need to panic. You've got 17 years before your full retirement age of 67. So, there's time to play catch-up and grow your nest egg.
"It is understandable to feel concerned, but it isn't too late to act," said Nolan Baker, founder, president and CEO of America's Retirement Headquarters. "While starting late can present a challenge, acting now can greatly increase the odds of a relaxing retirement."
But there's no time to waste. Saving for retirement must be priority No. 1. "It is time to kick it into high gear," Baker said.
Here are some steps to get back on track.
Do Some Quick Math For Retirement Planning
You might have zero saved now. But that doesn't mean you can't build a $1 million nest egg by age 67. The key, of course, is saving and retirement planning.
Let's say you earn $100,000 and max out your 401(k) and take advantage of the $7,500 catch-up contribution for people 50 and over. You'll be able to sock away $30,000 per year, or $2,500 a month.
Assuming a 3% annual inflation rate, a 2% annual raise and a conservative 5% rate of return, your 401(k) balance would be nearly $1 million ($970,000 to be exact) by age 67, according to NerdWallet's retirement calculator.
One million bucks is shy of the $2.14 million the personal finance site estimates you'll need for your Golden Years. But it's still a sizable chunk of cash for retirement planning. Using the common 4%-per-year withdrawal rule, you'll be able to generate $40,000 in annual income.
Do A Retirement Planning Financial Checkup
Before you can start saving, you need to do a "financial checkup," says Stephanie Roberts, partner and wealth manager at Haase Family Advisors at Steward Partners.
Look at your spending and debt for clues as to why you're not able to save. "Before you dive in, make sure you know where you are," said Roberts. "You need the full picture."
Creating a budget that frees up cash to save is a good place to start. Roberts said the key questions to answer are: "How much are you currently spending and on what?"
To find out, do a line-by-line audit of your checking account and credit card statements. The goal? Find budget-busters, such as too many dinners out with friends, monthly subscriptions you don't use or impulse purchases. You want a budget you can stick to.
"Allocate those savings toward retirement accounts," said Baker.
Use Savings Tools
It's also vital to capitalize on whatever savings benefits the government offers you, Baker adds. That means taking full advantage of higher 401(k) and IRA contribution limits. In 2023, the IRS increased the amount you can put into an employer-sponsored 401(k) by $2,000 to $22,500, and the catch-up contribution limit was raised $1,000 to $7,500. IRA contribution limits rose $500 to $6,500.
If you're a late saver, it's also important to avoid unforced errors that will make it doubly hard to build a secure retirement. One mistake, for example, is taking Social Security benefits before your full-retirement age.
Doing that results in a "lifetime reduction in monthly benefits," said Baker. Remember, the government will boost your Social Security paycheck by 8% every year after you reach full retirement age until you reach 70.
Don't Rush
You also don't want to try to amass a $1 million dollar nest egg overnight. Betting it all on a single stock, a cryptocurrency or other speculative investment can backfire and saddle you with large losses, Baker says.
A better plan is to stick to the basics of personal finance, says Sophoan Prak, a financial advisor at Vanguard. For starters, "save what you can now," said Prak. She notes that Vanguard recommends you save 12% to 15% of your income for retirement.
It sounds basic, but if your employer has a 401(k), it's time to sign up. A traditional 401(k) is funded with pretax dollars, which lowers your taxable income each year and frees up more cash to save. Those invested dollars will benefit from tax-deferred growth, which allows your money to grow tax-free until it's time to take penalty-free withdrawals after age 59 ½.
You want to at least invest enough to take advantage of your employer's match to avoid missing out on free money. And, since you're over 50, take advantage of the $7,500 catch-up contribution. "It will speed up your savings," said Prak.
One more thing: If your kids are finally out on their own and you're no longer supporting them, funnel those freed-up dollars into your 401(k).
Pull Every Lever
When it comes to retirement savings, "there are three levers you can pull" to help you achieve your goals, says Roberts.
"You can control to some extent what you earn, you can control what you spend, and you can control how you invest," said Roberts.
The reality is if you're starting to save at age 50, you won't come close to reaching your savings goal without investing your cash. That means a substantial chunk of your investable dollars must be put to work in higher-returning assets, such as stocks, that match your time horizon and risk tolerance.
Don't Tinker Too Much
Gain an edge by putting your investments on autopilot via regular investments in a 401(k). Putting money into the stock market every time you get paid develops good habits. "We love the discipline of regular contributions," said Roberts. "The beauty is years down the road you look at your statement and say, 'Wow, I have that much in my account.'"
Stick to a diversified portfolio, too. You don't want to put yourself at risk of losing big bucks on a single stock that heads south, or a risky investment that saddles you with huge losses, Roberts says.
"You want to take out the risk that one company's CEO commits malfeasance and brings the stock price tumbling down," said Roberts. "And you don't want to put all your money in something like Dogecoin and have something terrible happen and you lose all your money. That's not the kind of risk you want to take."
