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Top retirement savings tips for 55 to 64 year olds


If you’re 55 to 64, you still have time to increase your retirement savings. Whether you plan to retire early, late, or never, saving enough money can make a difference, both financially and psychologically. You should focus on building—or catching up, if necessary.

Of course, it’s never too early to start saving, but about a decade before you retire can be especially important. By then, you’ll probably have a pretty good idea of ​​when (or if) you want to retire, and even more importantly, you’ll still have time to adjust if needed.

If you discover that you need to save more money, consider these six time-honored retirement savings tips.

Pull out key

  • If you’re between the ages of 55 and 64, you still have time to increase your retirement savings.
  • Start by increasing your 401(k) or other retirement contributions if you haven’t reached the maximum.
  • Consider whether a larger pension or higher Social Security benefit is worth working a little longer.

1. Fund your 401(k) to the max

If your workplace offers a 401(k)—or a similar plan, such as a 403(b) or 457—and you haven’t maxed out yet, now is a good time to increase your contribution. Not only are such plans an easy and automatic way to invest, but you can also defer paying taxes on that income until you withdraw it in retirement.

Because your 50s and early 60s are likely to be your highest earning years, you may well be in a higher marginal tax bracket now than in retirement, meaning you’ll face smaller tax bill when that time comes.

Of course, this applies to traditional 401(k)s and other tax-advantaged plans. If your employer offers a Roth 401(k) and you choose that option, you will pay tax on the income now but can withdraw tax free later.

The maximum amount you can contribute to your plan is adjusted annually to reflect inflation. In 2023, that’s $22,500 for anyone under 50. But if you’re 50 or older, you can make an additional offset contribution of $7,500 for a total of $30,000.

2. Rethink your 401(k) allocation

Conventional financial wisdom says you should invest more conservatively as you get older, putting more money in bonds and less in stocks. The reason is if your stock declines for a long time bear marketyou won’t have many years for the price to recover and you may be forced to sell at a loss.

How cautious you should become is a matter of personal taste and risk tolerance, but some financial advisors recommend selling all of your stock investments and moving completely to the left. votes, no matter how old you are. Stocks still offer growth potential, but bonds don’t. The point is you should stay Diversify both stocks and bondsbut in an age-appropriate way.

For example, a conservative portfolio might include 70% to 75% bonds, 15% to 20% stocks, and 5% to 15% cash or cash equivalents, such as market funds. currency. A moderate conservative might reduce the bond share to 55% to 60% and increase the share share to 35% to 40%.

If you’re still putting your 401(k) in the same mutual funds or other investments you picked up in your 20s, 30s, or 40s, now is the time to take a close look and decide. See if you feel comfortable with that allocation as you approach retirement age.

One handy option that many packages now offer is target date fund, which automatically adjusts their asset allocation as the year you plan to retire draws closer. Target date funds may have higher fees, so choose carefully.

3. Consider adding an IRA

If you don’t have a 401(k) plan at work—or if you’ve funded your plan to its fullest extent—another retirement investment option is an individual retirement account (IRA). The maximum amount you can contribute to an IRA in 2023 is $6,500, plus $1,000 if you’re 50 or older.

People who turn 50 at the end of the calendar year can make their entire annual contribution for that year, even if their birthday falls at the end of the year.

There are two types of IRAs: Traditional and Roth. With one Traditional IRA, the amount you contribute is a pre-tax amount, which means it will be tax deductible for that year. With one Roth IRAyou get tax relief at the other end in the form of tax free withdrawals.

The two categories also have different rules about contribution limits.

Traditional IRA

If neither you nor your spouse have a retirement plan at work, you can deduct your entire contribution from a traditional IRA. If one of you is covered by a retirement plan, your contribution may be at least partially deductible, depending on your income and application status.

Roth IRA

As mentioned, Roth contributions are not tax deductible, regardless of your income or whether you plan to retire at work. Taxes on that amount will be paid in that year.

However, your income determines whether you qualify to contribute to Roth in the first place. Allowable contributions are reduced in increments throughout the income range, reaching zero at the top of the range. The numbers are adjusted annually.

For tax year 2023, the income exclusion range for taxpayers contributing to a Roth IRA is between $138,000 and $153,000 for singles and heads of households. For couples filing jointly, the range is $218,000 to $228,000. For a married individual filing separately, the amount is $0 to $10,000.

Also note that married couples filing jointly can often fund two IRAs, even if only one spouse has a paying job, using what’s called a IRA. Spousal IRA. IRS Publication 590-A provides the rules.

4. Know What You’ve Got To You

How aggressively you need to save also depends on other sources of retirement income you can reasonably expect. When you’re in your mid-50s or early 60s, you can get a much closer estimate than you might have had earlier in your career.

traditional pension

If you have a fixed pension plan at your current or previous employer, you will receive a personal benefit statement at least every three years. You can also request a copy from your plan administrator once a year. The statement will show the benefits you have earned and when they became awarded (that’s when they’re completely yours).

You should also learn how your retirement benefits are calculated. Many plans use formulas based on salary and years of service. So you can earn greater benefits by staying at the job longer if you are in the right position.

Social Security

Once you’ve contributed to Social Security for 10 years or more, you can get a personalized estimate of your future monthly benefits using Social Security Retirement Estimator. Your benefits will be based on your 35-year top earnings, so they can increase if you keep working.

Your benefits will also vary depending on when you start collecting them. You can get benefits as soon as you turn 62, although they will be permanently reduced from the amount you would get if you waited until “sufficient” retirement age (currently 66 or 67 for anyone born after 1943). You can delay getting Social Security until age 70 to get the maximum benefit.

While these estimates may not be perfect, they are better than guessing blindly—or optimistically. A 2019 survey by two University of Michigan researchers found that people tend to overestimate the amount of Social Security benefits they can receive.

In a word, the average monthly retirement benefit as of October 2022 is $1,630.93 while the highest possible benefit—for someone who has paid the annual maximum starting at age 22 and wait until age 70 to start receiving—$4,194 in 2022 . The maximum benefit in 2023 is $4,555.

While in some cases you can get free distributions from your retirement plans as early as age 50 or 55, it’s better to leave the money alone and let it continue to grow. up.

5. Leave Your Retirement Savings Alone

After age 59½, you can start withdrawing money without penalty from your retirement plans and traditional IRAs. With a Roth IRA, you can withdraw your contributions—but not any earnings from them—with no penalty, at any age.

There is also an IRS exception, commonly known as Rule 55waiving early withdrawal penalties on retirement plan distributions for workers 55 and older (age 50 and older for some government employees) people who lost or left their jobs. It’s complicated, so it’s best to talk to a financial or tax advisor if you’re considering using it.

But just because you can withdraw doesn’t mean you should—unless you really need the cash. The longer you leave your retirement account in place (until age 72, when you have to start receiving Mandatory minimum distribution from some of them), the better you are likely to get.

6. Don’t Forget About Taxes

Finally, as you sum up your retirement savings, keep in mind that not all of it is yours to keep. When you withdraw money from a traditional 401(k) plan or traditional IRA, the IRS taxes you at your rate of ordinary income (not a lower rate on capital gains).

So if you’re in the 22% bracket, for example, every $1,000 you withdraw will net you just $780. You may want strategize to hold more your retirement—for example, by moving to a tax-friendly state.

What’s the best thing to put money into in retirement?

There’s no such thing as a “best thing” to put money into retirement. Retirement investments will vary depending on the person’s financial profile, family circumstances, and needs. Some good investments for retirement are defined contribution plans, such as 401(k)s and 403(b)s, Traditional IRAs and Roth IRAs, cash life insurance plans and guaranteed income annuity.

What is the most important thing when saving for retirement?

The most important retirement strategy is to start saving early. Saving for early retirement is a smart thing to do because of the compound interest you get over time in your investment account. It also ensures that you’ve saved throughout your working life rather than rushing to save until the end of your working life, when it may be too late to accumulate enough assets for retirement.

What are the biggest mistakes in retirement?

The biggest retirement mistakes include not saving early, not taking into account health care costs, getting Social Security benefits early, and spending too much money in your early retirement years.

Key point

Retirement should be an exciting period in life, but it can be stressful for those who have to worry about money. Planning for early retirement and understanding the retirement plans and strategies available can help make retirement the most fulfilling time of your life.

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