About half of Americans who are near retirement age haven't even gotten out of the gate yet: 46% of baby boomers have nothing saved for retirement, according to a study by the Insured Retirement Institute, and less than a quarter believe they'll have enough money to last through retirement.
If you're part of that 46%, don't panic -- there's still hope. Saving at an older age takes some strategy, though. Unlike a young worker, you can't just sock some money away and let compound interest do the rest.
Fortunately, there are a few tricks to make sure you're making the most of your savings.
1. Consider working a few years longer
No, it's not the answer you wanted to hear. But you don't have to spend the rest of your life working; just an extra year or two can substantially boost your savings. That's because the longer you wait to retire, the more you'll receive in Social Security benefits (up to a certain point, that is).
First, figure out your full retirement age, which ranges from age 65 to 67 and is the age at which you can claim 100% of your Social Security benefits. While you can start claiming benefits at age 62, you won't receive the full amount. For example, if your full retirement age is 66 and you retire at 62, your benefits will be cut by about 25%. If you retire at 64, you'll see a 13.3% reduction.
On the flip side, if you delay retirement past your full retirement age and wait until age 70 (the age at which your benefits max out), you'll receive a bonus to make up for the years you didn't take benefits. Assuming your full retirement age is 66, if you wait until age 70 to claim Social Security, you'll receive 132% of your monthly benefit.
Let's say your full benefit amount is $1,400 per month -- close to the average amount Social Security retirement beneficiaries get each month. If you work a few more years and retire at 70, you'll receive around $1,848 per month. If your savings are already sparse, this extra money can make a huge difference.
Plus, the longer you work, the more time you spend building that nest egg up, rather than drawing it down to cover expenses.
2. Take advantage of catch-up contributions
Saving is easier when you're younger, because your investments have much more time to grow, but the federal government does give older savers one distinct advantage: catch-up contributions.
Whether you have a 401(k), IRA, or Roth IRA, you can take advantage of catch-up contribution limits. For 2017, savers under age 50 can contribute up to $18,000 per year to 401(k)s and $5,500 to IRAs. But for people over 50, those limits increase to $24,000 and $6,500, respectively.
That may not seem like much, but it adds up quickly over a few years.
Say you have $100,000 in an IRA at age 50 and are currently contributing $4,500 per year. If you continued at this rate, assuming your investments earn an annual 7% rate of return, by age 70 you'd have about $584,000. If, however, you instead started contributing the full $6,500 you're allowed, after 20 years you'd end up with a nest egg of over $672,000 -- a difference of $88,000.
What if you can't afford to save $24,000 (or even $6,500) per year? After all, if you've been saving little to nothing for years or decades, it may be tough to start maxing out your retirement accounts now. This is where you may need to make sacrifices. If an extra $2,000 per year can amount to $88,000 by the time you retire, then cutting back in a few places to scrounge up some extra cash is clearly worth it.
3. Choose the best investment path for you
Saving your money is just one half of the equation -- you also have to decide where you should save it. Should you put it all in your 401(k)? Maybe an IRA is best? Or perhaps you should use both a 401(k) and an IRA?
In most cases, it's a good idea to start with your 401(k) and take full advantage of your employer's matching contributions. After all, that's free money. Once you're contributing enough to earn the full match, you may decide to invest any extra cash in an IRA, where you have more freedom to choose where it's invested.
While 401(k)s are great, you typically don't have many choices as to where to invest your money. Most plans offer a handful of mutual funds. In an IRA, though, you can personalize your investments by investing in individual stocks and bonds, exchange-traded funds, and mutual funds.
If you're risk averse, or simply don't have the time and inclination to pick individual stocks, you can simply invest in some low-cost index funds, which reduce your risk by spreading your money across a broad array of equities. By using both your 401(k) and an IRA, you can take advantage of the "free money" offered by your employer and create a personalized investment strategy based on your goals and risk tolerance.
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