Everyone knows the time to start saving for retirement is when you are young, but very few actually do. In fact, for those over the age of 40, a recent survey shows that their biggest regret regarding retirement is not starting to save early enough.
What about those who have not saved at all? They make up around 25% of the U.S. population, and they are not necessarily the youngest among us. These days, the average balance in a typical 50-year-old's retirement savings account is a measly $43,797 – despite the fact that many baby boomers believe that they need approximately $800,000 in order to retire.
If you are a young boomer with no retirement savings to speak of, don't despair. Better to begin late than not at all, and there are a few advantages to being 50 that can help you catch up a bit. Here are a few tips to help you get started.
Come up with a plan to manage your finances
Educating yourself about financial issues is an absolute must for retirement planning, and a major reason many people can't save is because they simply don't understand how to manage money. According to the National Foundation for Credit Counseling, the primary reason clients sought their help was not due to a lack of income, but problems managing debt, and maintaining a budget.
Be prepared to cut back in order to save more
A recent Merrill Edge survey found that, although 61% of upscale baby boomers are worried about not having enough money to last through their retirement, very few are willing to sacrifice on expenses like dining out, entertainment or vacations in order to save more.
Even if these affluent Americans won $1 million, only 19% said they would put the funds toward retirement, and a mere 32% said they would opt to save or invest the windfall.
Don't make that mistake – particularly when you will be trying to play catch-up with your retirement savings. Pack a lunch, take day trips, rent a movie rather than going to the theatre. Ten years from now, you'll be glad you did.
Take advantage of IRA and HSA accounts
If you haven't already done so, open up an Individual Retirement Account, and put the maximum amount away each year. If you opt for a traditional IRA, you can deduct your contributions from your earnings at tax time; a Roth IRA does not allow for this, but qualified withdrawals will be tax-free.
If you are 50 years old, you can put an extra $1,000 annually into this account, for a total of $6,500 – as can your spouse.
Health Savings Accounts are another great savings vehicle, if you happen to have a high deductible health plan – which many older Americans do. For plans that qualify, you may contribute $3,250 yearly to an HSA as an individual, while families can sock away $6,450. Once you reach age 55, you will be able to add another $1,000 annually. As long as you use the funds for qualified health care expenses, you will not pay tax on the withdrawals.
These contributions are also tax deductible, and the money in the account can be rolled over from year to year if it isn't used. You can even use the money for expenses other than those that are health-related, once you reach age 65 – though you will have to pay income tax on those disbursements.
Getting serious about retirement planning at age 50 isn't optimal, but it certainly beats the alternative: facing retirement with no plan at all. It will take some due diligence and willpower, but sticking to a plan for the next 15 to 20 years will put you firmly on the path to retirement security.
How to get even more income during retirement
Social Security also plays a key role in your financial security, but it’s not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.