If you are like many, you may be worried you have not saved enough to retire in the fashion you had always dreamed of. But do not worry, it is never too late to take over and properly plan for the retirement you always dreamed about having. If you are worried or concerned you have not saved enough the following tips can help you with your retirement. And as always, if you need assistance, seek out a fee-only Registered Financial Consultant.
Adjust Your Retirement Timeframe
As I am sure you are aware, people are eligible to collect Social Security starting at age 62 and many people do retire at this age, more on Social Security later. So, age 62 is when people start or begin to think about retirement in serious terms. But few of us are really ready and able to fully retire at this age due to a lack of proper planning with regards to what we have saved. How do you make up for this lack of planning? Well, it might very well mean you are not able to retire at age 62 but rather work a few years more. That way you are still earning money meaning you will not have to tap into your retirement accounts to survive. It also means that you can continue to save in these accounts and let them continue to grow. Even working an extra five years can make a huge difference in terms of what you can expect later. That means if you reach the age you hoped to retire and find yourself a bit short, consider pushing back your retirement age to something more manageable.
Double Down on What You Save
As you reach retirement age, you should have fewer expenses that are present when you are younger, such as a child’s education expenses or possibly a mortgage. But as seeing the final years of your working career tend to be the highest in regard to what you earn, save as much as you can. And here I am talking about maxing out your 401(k) and IRA accounts. For next year in 2020, the IRS has upped the amount you can save in a 401(k) to $19,500 for those under the age of 50 and for those over 50, you are allowed an extra $6,500 for a total of $26,000. If for some reason, you were not able to save early enough in your career by maxing out your contributions now, you may be able to retire in style. And as for IRA accounts, the IRS did not change the limits for those under 50 as they remain at $6,000, but for those over 50, you are allowed an extra $1,000 for a total of $7,000.
Of course, it is better to save the most you can come early in your working career as it will allow time to work in your favor and provide you decades of compounding to work in your favor. But if you were not able to do that, this is the next best thing and combined with working a few extra years, and it might just make a big difference.
Make Some Money When You Are Retired
I know you worked your entire life and now you want to retire and do just about well nothing. This is not a well thought out plan to be honest with you for a few reasons. One, if you are like most who have worked for decades, you probably did not save enough to retire and do nothing. By creating a small stream of revenue in retirement, you can reduce some of the pressure on your savings to carry you through what could possibly be three decades. Two, it can have an impact on what you receive from Social Security, still more on that particular topic a bit later. And finally, doing nothing is not good for you physically or mentally. Even turning a hobby into something that can generate some extra funds can do a lot for the quality of your life as well as your pocketbook.
Evaluate Your Retirement Lifestyle
If you are retired, chances are you will see areas of your spending that will decrease like what you spend on commuting to work or on work clothes and will most likely spend more on healthcare. If you are properly budgeting in your working years seeing where you can reduce spending in retirement will not be too difficult. But you must have a budget once you retire and are living on a reduced income as most of us will once we retire. If you own a large house and it is paid for, but you like the area you are living, consider downsizing your house. That way you can somewhat reduce your costs of living due to being in a smaller house and invest the extra proceeds from selling your larger house. This can be an additional way to make up for shortcomings in your savings.
Social Security
Now, as I alluded to at the start, you are eligible to start collecting Social Security at age 62. However, for most of us still working, we do not reach our full retirement age until 66 or like me 67. So, what does that mean for you? If you begin your Social Security benefits at age 62, you can expect a permanent reduction of your benefits of about 6% per year you start collecting early. And if you actually do delay your benefits past your full retirement age, you can expect an increase of 8% per year meaning if your retirement age is 67 and you delay until 70, and you will get 24% more a year in benefits. But there is no reason to delay taking your benefits past age 70 as that is where the increases stop accumulating.
And by delaying your benefits and continuing to work, you may replace some of your early working years where you did not earn much with higher earning years. Why is that important you ask? Well, your Social Security benefits are based on your highest 35 years of earnings. This means if you had a few years where you did not work, those would be zeros in the calculation. Or if you had a few years where you only worked part-time, you might be able to replace those years with higher wages. And this can also greatly increase your annual benefits that are permanent.
Retirement may be right around the corner for you, or it could be many years away, regardless save as much as you can as early as you can. And if you are like so many and did not save properly, you can use one or a combination of these tips to make your retirement the best it can be.
If you are having any difficulty planning for your retirement, seek out the assistance of a fee-only Registered Financial Consultant. And to join our mailing list simply fill out the form below.
