Are You On Track to Retire? The Late Savers’ To-do List
The youngest baby boomers are turning 50 this year. If you haven’t already, it’s about time to give retirement planning some serious thoughts. Advisors have a list of basic must-dos for people in this life stage.
“People who come to me in their 40s and 50s are really looking at maximizing everything they can do to prepare for retirement,” said Eve Kaplan, founder of Kaplan Financial Advisors, during an advisor panel.
The panel, on Benefits of Financial Planning, was held recently as part of National Financial Advisor Week in New York’s Times Square. This event, which attracted thousands of onlookers, featured financial advisors giving tips on personal finance, ranging from retirement saving to college funding. The panels also focused on how people can get the most out of advisors. At the event, Jennifer Rufener of Dover, Ohio, won a sweepstakes for a free college education.
As medical science improves, life expectancy extends. The default setting is 95 when she works with female clients, Kaplan said. To be able to maintain a reasonable retirement lifestyle for two or three decades takes diligent saving and careful planning.
1. Maximize contributions
Maximizing your contributions to retirement accounts, such as 401(k)s, is the first step, said Grant Webster, a financial planner at AKT Wealth Advisors LP in San Diego. The annual contribution limit is $17,500. If you reach 50, there is an additional catch-up contribution of $5,500.
Often, people have multiple goals. If the choice is between saving for retirement and saving for college, give retirement the first priority. “There are loans for education, but I haven’t seen a loan for retirement,” Webster said.
2. Understand your spending
Understanding your spending is key to determine when you can retire, said Jason Lina, an advisor at Resource Planning Group in Atlanta. Consider using free online tool, such as Mint.com, to create a spending plan, he suggested.
“Any kind of plan is not going to work if you don’t know how much you spend,” he said.
By evaluating your spending, you know how much you need and how much extra money you may have to fund other financial goals in retirement.
3. Know the Social Security rules
Knowing the Social Security rules makes a huge difference, Webster added, because the age you start claiming it determines your benefit income for the rest of your life. If you begin collecting Social Security before full retirement age, you permanently reduce your monthly benefit; the same goes with a spousal benefit.
“If you don’t inform yourself or get good counsel from an advisors, you can easily be passing up thousands of dollars of benefits,” advisor Kaplan said.
Starting late doesn’t mean you can’t pull it off. It means you have to commit your best efforts, advisor Lina said. If, at a 5% rate, $5,000 a year of savings can grow to more than $630,000 in 40 years. Shortening the time by half, you need to put in four times more a year to reach that same result.
“Start early,” he said. “Start now.”
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