by Lyle Daly | Jan. 28, 2019
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Baby boomers are starting to get to the end of their careers, with thousands more reaching retirement age every day. Unfortunately, a considerable number of them either have insufficient retirement savings or even none at all. When you barely have enough money to get by, those golden years don't feel so golden.
Just how bad is it? Recent research paints a bleak picture, and it could be tough for a large portion of baby boomers to retire anytime soon.
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According to a survey by Comet, 42% of baby boomers haven't started saving for retirement yet. The average age of the respondents in that group was 59.7, and the average age they expected to start saving was 59.8, so it's obviously a pressing concern for those who haven't been able to work on their nest eggs yet.
While the worst-case scenario for baby boomers is having no retirement savings, those with no savings aren't the only ones who could face trouble. GoBankingRates found that the majority of baby boomers are behind on their savings compared to the benchmarks financial experts recommend. Among those in the 50 to 59 age bracket, 78% were behind, and it didn't get much better for those over 60 years old, where 74% had saved too little.
People have a tendency not to worry too much about the future. Out of sight, out of mind. That's one of the reasons why retirement may not seem like a pressing concern for most of your life -- because you think you can figure it out later. As you get closer to retirement age, reality starts to set in.
Without savings to draw from in retirement, you'll need to rely on Social Security, which will be about 40% of your average income. Such a drastic decrease in income will require you to significantly change your lifestyle.
Even if you cut back enough to survive on Social Security, you'll be one emergency expense away from going into debt. You may not have much extra money to put away for any large bills that come your way, such as home repairs or out-of-pocket medical expenses.
The sad truth is that when you haven't saved enough for retirement, these are the most likely scenarios:
If you're a baby boomer who has nothing saved for retirement or doesn't have enough saved, then now is the time to jump start your nest egg and plan for the end of your career. Here's how:
Max out your 401(k) contributions -- At a minimum, you should contribute enough to your 401(k) to max out any employer match you get. Don't stop there, though. It's even better if you can contribute enough to reach the annual limit, which is $19,000 as of 2019. One advantage of being over 50 is that you can also make catch-up contributions, allowing you to put in another $6,000 past that annual limit.
At this point, you're most likely in your peak earning years, which makes a traditional 401(k) the best retirement plan option. You can contribute pre-tax income to your 401(k), reducing your tax obligations for the time being, and then withdraw from your account when you retire and have much lower income.
If you don't have an employer-sponsored retirement plan or you're contributing the maximum and still have money left over, you can also open an individual retirement account (IRA). There are plenty of excellent online stock brokers for IRAs that can help you with this.
Eliminate your debt -- The last thing you want is to have debt payments when you're retired, as those will stretch your budget even more. Find out exactly how much debt you have, and then come up with a realistic repayment plan that you can pull off before you retire.
When deciding which debt to pay off first, credit card debt should be your priority, since credit cards usually have the highest APRs. After that, you can work your way down to debts with lower interest rates, such as your mortgage.
Look for ways to cut costs -- If you don't have any retirement savings, overspending could be the culprit. Go over your monthly expenses and cut anything you can. Every dollar you save is more money you can contribute towards your retirement every month.
This is also a good time to plan how you can handle having less income. The right lifestyle adjustments, such as moving to an area with a lower cost of living, downsizing your home, or selling your car, can help you have a more affordable retirement.
Having no retirement savings as a baby boomer is a problem, but it's not a hopeless situation. By committing to paying off debt, contributing heavily towards your retirement accounts, and reducing your spending, you can make substantial progress in under 10 years.
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. The Ascent's picks of the best online savings accounts can earn you more than 8x the national average savings account rate.
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