The Best Ways to Boost Retirement Savings After Age 50 | Retirement
A burgeoning number of U.S. adults are facing retirement with no discernable income sources. That’s no good at a time of continued high inflation, which crimps the ability to steer more money into a retirement account.
According to a recent U.S. News survey of 2,000 adults, half of respondents said they had to pause saving for retirement at some point in 2022, 41% stopped contributing to retirement funds like 401(k)s or individual retirement accounts.
Even financial services professionals who’ve seen it all over the years are worried for retirement-minded workers – especially those nearing retirement age. “There is obviously a large (retirement) problem right now,” says Patrick J. Swift, vice president of wealth planning at Amplius Wealth Advisors in Blue Bell, Pennsylvania.
This problem is most concerning for those age 50 older, “as they have the fewest remaining years in the workforce to make up shortfalls relative to their younger peers,” Swift notes.
But there are ways to stash some cash after age 50 that can go a long way in retirement. Here’s a look at seven strategies that can do the job in the short long term.
- Take advantage of retirement plan catch-up rules.
- Max out your retirement savings.
- Leverage a health savings account.
- Delay taking Social Security.
- Pay down household debt.
- Keep working.
- Embrace other savings opportunities.
Take Advantage of Retirement Plan Catch-Up Rules
Anyone nearing 50 or past that age can reap legislative benefits related to retirement accounts.
“For employer-sponsored retirement accounts like 401(k)s 403(b)s, there is a catch-up contribution that people age 50 older can make to their accounts above the initial limits,” Swift says. “For non-employer individual retirement accounts like IRAs Roth IRAs, there is also a catch-up contribution for people age 50 older.”
“These catch-up limits provide an opportunity to supplement tax-advantaged retirement accounts should absolutely be utilized,” Swift adds.
After 50, catch-up contributions to IRAs employer-sponsored retirement plans can act as an “energy booster in the back half of a marathon,” says Doug Ornstein, a senior integrated solutions manager with TIAA Wealth Management.
“If you add an extra $1,000 per year for IRAs $7,500 per year for employer-sponsored retirement plans, that’s a total of $8,500,” Ornstein says. “If that compounds at 4% annually, then over a 15-year timeframe from age 50 to age 65, it would be worth more than $170,000.”
Max Out Retirement Savings
Individuals over age 50 should try to contribute the maximum amount allowed to their retirement accounts. For 401(k)s, the 2023 contribution limit for those 50 older is $30,000.
“Fifty-one-year-olds who contribute $30,000 per year for 15 years averaging a 6% growth rate would have a balance of approximately $740,000 when they turn 65,” says Marla Chambers, senior financial planner at Buckingham Advisors. “If they contribute this amount for 20 years, they will have a balance greater than $1 million when they turn 70.”
Leverage a Health Savings Account
If you enroll in a high-deductible health insurance plan, contribute the maximum allowed to a health savings account. “Once the HSA balance grows significantly, invest the long-term portion to take advantage of long-term growth,” Chambers says.
Individuals can open an HSA at most banks credit unions. Your employer or insurance company may also have access to a good financial institution to leverage an HSA.
Delay Social Security
“Full Social Security retirement age is now 67 (for those born in 1960 or later), depending on your financial health situation,” says Lucas Noble, a financial advisor at Noble Financial Group in Wakefield, Massachusetts. “For example, an individual can be 67, in great health wants to work. In this case, I would encourage that person to delay Social Security to age 70 in order to gain heftier regular payments.”
Data shows that delaying Social Security payments to age 70 instead of 62 boosts monthly payouts by 77%, with inflation added into the mix, according to a recent study in the Journal of Financial Planning.
Pay Down Household Debt
You can actually earn cash by cutting debt – it’s worth doing.
For example, consider someone who’s accumulated a hefty credit card balance hasn’t been able to pay it off completely.
“That person is stuck paying high-interest rates to that credit card company,” says Samuel Eberts, a partner at the financial advisory firm Dugan Brown. “If this person has an employer-sponsored retirement plan they have been contributing towards, they could request a loan from their account to eliminate this high-interest debt. After that, they’ll be able to immediately free up cash flow start saving more for retirement.”
If you’re looking for cash after 50, it’s also a great idea to review your monthly budget to find ways to reduce trim expenses. “Those savings can then be channeled towards retirement,” Eberts says.
This strategy may only result in a small amount of savings each month, which doesn’t seem like much in the short term. However, those marginal contributions do two things, Eberts notes.
“First, even $100 a month in extra contributions for the next 10 to 15 years should grow earn compounding interest, leading to a substantial difference in how much that person has saved for retirement,” he says. “Second, it shows they can live off less than what they previously thought, which will allow their retirement savings to last longer require less needed in total to be able to retire.”
Whether that means keeping your day job or going the freelance route as a consultant, Uber driver, virtual tutor, freelance writer or even a pet walker, earning a paycheck after age 50 is a great way to stash some cash – stay busy.
Embrace Other Savings Opportunities
When creating a cash-generating plan after age 50, it’s also important to factor in the life stage average earnings for people at that age level.
“Career earnings average annual income will generally peak for people in their 50s 60s prior to retirement,” Swift says. “People in that age group may also have children entering adulthood coming off their payroll, or they may be close to paying off a mortgage.”
Between higher earnings lower expenses, you may find larger savings opportunities, Swift notes.
“The key is to have a plan to draw awareness to your cash flow savings opportunities not to fall into the trap of simply spending more money that made its way to your pocket,” he adds. “It’s a hard thing to do but absolutely critical to be aware of to meet your retirement income saving goals.”