How to Plan for Retirement If You’re Behind at Age 50

If you find yourself nearing retirement age without adequate savings, you’re not alone. Many people reach age 50 and realize they may not have enough saved to maintain their desired lifestyle in retirement. However, while catching up on retirement savings after age 50 can seem daunting, there are several strategies that are designed to help you build a more secure financial future. Here’s a step-by-step educational guide on how to help plan for retirement if you’re behind on saving.

1 – Take Advantage of Catch-Up Contributions

One of the advantages of turning 50 is the ability to make “catch-up contributions” to retirement accounts. These contributions allow you to exceed the standard limits and can help you accelerate your savings:

• 401(k) Catch-Up: For 2024, workers over 50 can contribute an additional $7,500 on top of the standard $23,000 contribution limit, making the total possible contribution $30,500 annually.
• IRA Catch-Up: You can also contribute an extra $1,000 to your traditional or Roth IRA, raising the total limit to $8,000 annually.

2 – Delay Retirement

Delaying your retirement, even by a few years, can provide multiple benefits. Working longer allows more time to save, reduces the number of years you’ll rely on your retirement savings, and increases your Social Security benefits. For each year you delay claiming Social Security beyond your full retirement age, your benefits increase by about 8% until age 70. This higher monthly benefit can make a significant difference over time.

Even if you can’t continue full-time work, consider part-time or freelance opportunities. The extra income can reduce the need to withdraw from your savings early, allowing your investments to grow.

3 – Review and Adjust Your Budget

If you’re behind on retirement savings, it’s crucial to take a close look at your budget. Identify areas where you can reduce spending and reallocate those funds toward retirement savings. Cutting back on discretionary expenses like dining out, entertainment, or travel can help free up funds for contributions. Consider downsizing your home or moving to a more affordable location to further reduce costs.
Automate your savings by setting up automatic transfers to your retirement accounts, ensuring that saving becomes a consistent part of your financial routine.

4 – Reevaluate Your Investment Strategy

As you get closer to retirement, it’s important to strike a balance between growing your savings and protecting your investments. Consider working with a financial advisor to help you reassess your portfolio and determine the appropriate risk tolerance for your unique needs.

5 – Reduce Debt

Carrying high-interest debt into retirement can drain your savings and limit your ability to contribute to retirement accounts. Focus on paying off high-interest debt, such as credit card balances and personal loans, as quickly as possible. Reducing your debt load frees up more income for saving and reduces financial stress in retirement.

Consider using the “snowball” or “avalanche” method to tackle debt: either by paying off the smallest balances first to build momentum (snowball) or targeting the highest-interest debts first to save more on interest over time (avalanche).

6 – Consider Downsizing

Housing is often one of the largest expenses in retirement. By downsizing to a smaller home, moving to a lower-cost area, or considering a home equity conversion option like a reverse mortgage, you can free up funds to support your retirement. A smaller home not only costs less in terms of mortgage or rent, but it also reduces maintenance, utilities, and property taxes.

Downsizing might also offer you the opportunity to put the equity you’ve built in your current home toward your retirement savings or to pay off debt.

7 – Delay Social Security Benefits

Waiting to claim Social Security until age 70 can significantly boost your monthly payments. If you claim at age 62, your benefits will be reduced, while waiting until 70 allows you to maximize your monthly payments. Each year that you delay receiving benefits after your full retirement age adds about 8% to your eventual monthly payout.

For many people, Social Security forms a major part of their retirement income, so maximizing these benefits is a crucial strategy when you’re behind on savings.

8 – Consider Health Care and Long-Term Care Costs

Healthcare is one of the biggest expenses in retirement, and it’s crucial to plan for it. If your employer offers a Health Savings Account (HSA), consider taking advantage of it. Contributions to HSAs are tax-deductible, grow tax-free, and can be withdrawn tax-free for qualifying medical expenses. After age 65, you can also use HSA funds for non-medical expenses, though withdrawals will be taxed like regular income.

Additionally, research long-term care insurance to cover potential future expenses. Medicare does not cover long-term care, and the cost of care can drain your savings if you’re unprepared.

9 – Seek Professional Financial Advice

Navigating retirement planning can be complicated, especially when you’re behind on savings. Seeking the guidance of a financial advisor can help you create a tailored retirement strategy. A financial professional can analyze your current financial situation, help optimize your retirement contributions, and provide advice on investment strategies, Social Security timing, and more.

10 – Stay Positive and Consistent

While catching up on retirement savings later in life can seem overwhelming, it’s important to stay positive and focused. Every dollar you save and every step you take to improve your financial situation can help you move closer to your retirement goals. Consistency is key—regularly contributing to retirement accounts, managing expenses, and making informed financial decisions can help you make progress, even in your 50s and beyond.

IRS: 401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000

This is intended for educational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your financial professional regarding your unique situation.