“So, you’ve got a decently-sized nest egg building, your debts are paid off and your estate is more or less in order. You’re approaching the home stretch to retirement... Let’s not waste any more time—you’ve got money to maximize.”
First, some good news: when you reach 50, you can begin making catch-up contributions to your retirement accounts. You can add an extra $6,000 to your 401(k) this year and $1,000 to an IRA or Roth. Small business owners, contractors, and those with freelance income can potentially save $61,000 in a solo 401(k). Note that limit is for all of your 401(k) accounts each year.
Two Cents’ recent article, “What to Know About Money in Your 50s and 60s,” adds that if your kids are out of the house and that house is maybe even paid off (or close to it), you can move some of that extra savings toward your retirement accounts. According to Forbes, even $1,000 extra in an IRA can make a huge difference, if you contribute it every year between 50 and 67. For example:
- 5% annual return: $26,000
- 7% annual return: $31,000
- 10% annual return: $41,000
To see if you’ll have enough retirement savings, take your total income…
- Less any contributions to retirement accounts
- Less any expenses that will go away in retirement
- Plus, any added expenses you’ll have when you’re retired
- Less taxes (estimate high, as taxes will likely to go up, not down)
That gives you your rough total.
If it’s a long way from the budget you’ve been living on, dig deeper and you can see where to make improvements.
Your 50s are the critical time, when preparing for retirement. Review your savings to see the mix of tax categories on your investments: pre-tax, post-tax, and tax-free.
If you have almost all your savings in pre-tax accounts, which decreases the flexibility to pay for retirement, consider building up after-tax and tax-free savings, so you have more flexibility once you retire. This may include investing in a Roth IRA. Consider a backdoor Roth conversion, if you make too much to contribute to a regular Roth. If you’re taking qualified withdrawals (the account’s been open for at least five years and you’re 59½ or older), then your taxes won’t be impacted in retirement, which can be a helpful strategy.
Next, if you’ve set up a Living Trust already, you should check to ensure that you’ve titled your assets properly. For example, on a bank or brokerage account, you can add beneficiaries to that account, called a Transfer on Death (TOD). This works the same as adding beneficiaries to an IRA account or a retirement plan. Titling your assets properly, lets you avoid probate. It’s a faster and cheaper transfer. Whether you’ve already set up a Living Trust, or you still need to, speak with an Attorney today to make sure everything is in place and no updates or changes are needed. Call Rowley Law , 847-490-5330, today to schedule an appointment.
Now is the time to also think about when you’ll claim Social Security. While you can claim Social Security as early as 62, it’s better financially to wait to take Social Security until you’re 70. That’s because the payout—both the monthly and over time—will be higher. However, this option isn’t for everyone. It’s one to be made with your spouse, considering your retirement plans and how much you’ve managed to save.
Reference: Two Cents (August 17, 2018) “What to Know About Money in Your 50s and 60s”