If you blink your eyes and suddenly realize you’re in your 50s without any retirement plans, you’re not alone. For a million and one reasons, you just haven’t gotten around to it. Now you are in your 50s, and you’re scratching your head wondering, “Where do I start?” Don’t be too hard on yourself, and don’t worry. It’s not too late to begin saving for retirement. Here, you’ll learn how to take the appropriate steps to start a realistic retirement savings plan that will carry you into your golden years.
Examples of Employer’s Retirement Plan
What is an Employer’s Retirement Plan? An employer-sponsored plan is a low-cost or no-cost benefit plan offered to an employee. Some of these plans allow the employer to make matching contributions to your plan (free money!).
401(k)
The 401(k) is an example of an Employer’s Retirement Plan. With this plan, an employee makes contributions to their 401(k), and the contributions, along with the earnings from investments, will be tax-deferred. This means you won’t pay taxes when you contribute to the fund, but you will pay taxes on the contributions and earnings years later when you make a withdrawal. A benefit of the 401(k) is that employees will match a percentage of the contributions which are also deferred until withdrawal.
Roth 401(k)
This plan is another Employer’s Retirement Plan and, with one exception, is just like the traditional 401(k) plan. The difference is contributions in the Roth 401(k) are not tax-deferred. Taxes are paid upfront and all income earned from interest, dividends, capital gains are tax-free.
Roth IRA
A Roth IRA (Individual Retirement Arrangement) is a retirement account that allows your investments to grow tax-free in addition to offering substantial tax benefits. You pay taxes on the money you put into it upfront. After that, the funds are not taxed as long as you don’t draw from it until after the age of 59-1/2 and you have had the account for more than five years. It’s tax-free while it’s being invested, and it’s tax-free when you decide to withdraw it.
However, there are certain income limitations that might make you ineligible. For example, in the year 2020, a single person’s Modified Adjusted Gross Income (MAGI) is required to be less than $139,000 to make contributions to their Roth IRA. A married couple’s MAGI must be less than $206,000. People younger than 50 can currently contribute up to $6000, while people 50 and older can contribute up to $7000.
Catch-Up Contributions
in 2020, people who are 50 and older, at the end of a calendar year, can make yearly catch-up contributions in the amounts of $6500. These contributions may be permitted by the following plans: 401(k) (other than a SIMPLE 401(k)), 403(b), SARSEP, and governmental 457(b). If you have an IRA, you can contribute another $1000 annually while saving for your retirement.
Target Date Funds
Also called a lifecycle or age-based fund, target-date funds allow you to choose the year you expect to retire. So you invest in a mutual fund, for example, for that target date. If you are in your 50s, this target date may be 15 or 20 years down the road. This type of fund usually involves higher risk – higher rewards investments early on and slowly converting to a safer portfolio with simple, lower risk – lower rewards investments of certain stocks and bonds. Your money will grow, but in a conservative fashion until your retirement.
Try to Become Debt Free
The secret to becoming debt-free is to stick to a strict budget. Review your expenses, figure out what you can do without, and start paying down that credit card or loan debt. Right now, interest rates are extremely low, and you can probably transfer a balance from a high-interest credit card to one with a lower rate. As you pay down that credit card, remember that you are saving for retirement and you should resist the urges to buy things that you cannot afford.
Get a Part-Time Job to Assist in Saving for Retirement
Social Security puts a lot of weight into your 35 highest-earning years, so earning more money during the evenings or weekends will help boost your Social Security benefits down the road. There are more work-from-home jobs now than there ever has been before, and many of them have flexible schedules making it easier to adjust your schedule to another job.
Pay off Your Mortgage Early (3 Methods)
The longer you take to pay off your mortgage, the more interest you’ll be paying. So if you can, try to pay off your mortgage early and keep more of your own money.
- Making extra payments during the year is a good way to speed up the mortgage payoff when saving for retirement. One way is to pay half of your required monthly payment on a biweekly basis. At the end of the year, you will have made 13 complete mortgage payments instead of only 12. Make sure the extra month of the mortgage goes directly to paying off the principal balance.
- Another way to pay off your mortgage early is to add a set amount of money to your mortgage payment every month. If your mortgage payment is normally $800, try paying $900. This will shorten the period of your mortgage and can save you tens of thousands of dollars, depending on your mortgage terms.
- Shortening the length of your mortgage from a 30-year term to a 15-year term will save you a ton of money. This makes sense if you can get a lower interest rate and afford a higher payment. The Internet is full of mortgage calculators to help predict your potential future payments and savings you would have from changing the length of your mortgage term.
Save, Save, Save
If you don’t have a plan, saving money can be a difficult task. With a clear and laid out plan along with some firm budgets and discipline, you can save money. To get started on a savings plan, first find out where your money has been going. Click on your online banking website, and figure out where you have been wasting money. Are you eating out too much, buying expensive brands, wasting food, or maybe have an expensive TV viewing plan with your local cable company? You are saving for retirement so explore all of these and start trimming down some of the unnecessary expenses in your life.
Downsize
This idea is relatively simple. If you live in a house where your kids grew up, has six bedrooms and four bathrooms, and is close to a school, maybe you don’t need a house that size, in that location, anymore. If the home you’re in is only occupied by you and your spouse, consider selling your home and downsize to a smaller house or condominium. Even though you are probably emotionally attached, try to separate those emotions from the reality of how helpful a chunk of money that size could be. Once you get settled into a smaller and cheaper (hopefully debt-free) home, put those savings into a moneymaking account as soon as possible, and this will go a long way toward securing your future with fewer worries.
Relocate
Even though you might be extremely emotionally attached to the location where you currently live, it could be beneficial for you to consider living in another state where taxes are more favorable for seniors and retirees. Wyoming, for example, is considered to be the most tax-friendly state in the country because it doesn’t tax benefits from your Social Security, pension, 401(k) withdrawals, IRA distributions, and other types of and home. Florida is a hot spot for retirees, and one reason is that Florida does not charge state income tax. If you are serious about building a retirement for your future, relocating to a tax-friendly state might be the best option for you.
Some people in your 50s or older will often relocate to a state with cheaper property values. But if you don’t want to leave the state you’re in, consider choosing another town in your state that offers similar home square footage for a cheaper price. Sometimes, just moving 10 or 15 miles away from your current location can reduce the price per square foot of your home to make a considerable difference and save you a lot of money you can put toward your retirement. You’ll be getting more bang for your buck.
Sell Your Business
If you are a business owner and are running a successful business, you may want to consider selling the business while it is a proven moneymaker. As you get older, things might change, and your business might start slowing down. You can sell it now and get the most out of it. Then, put that money from the sale to work for you in some strategic investment accounts and find work in a similar position, but for someone else.
If it has been a while since you made improvements to your business, you should consider making those improvements to attract the highest bidder for your business. If you need a loan to make those improvements, Affinity Beyond Capital has professional lenders waiting to help you get a loan that is perfect for your situation. Call today at 833-234-6489.
If you’re in your 50s and just getting started on your retirement plan, make up your mind what you want to do, and get started immediately. It’s not too late to secure your future however the rest of your life with the comfort of knowing you have a safe retirement plan waiting on you.