Retirement preparation is daunting. For many, raising families, managing life’s curve balls, and paying down debt while trying to save for the future is much easier said than done. So much that nearly half of Americans approaching their retirement years have little to no savings whatsoever.
However, all is not lost for the unprepared retirees. In fact, taking a step back, evaluating the situation, and re-approaching from a holistic perspective could save a person’s golden years. So, before you fly the coop, give these catch-up and saving opportunities a shot.
1. Take advantage of catch-up contributions for IRAs and 401(k)s
It’s unlikely this is groundbreaking news, so let’s get this one out of the way first. If you’re approaching 50 or beyond, be sure to take advantage of making larger contributions to your retirement plans. The additional $1,000 contribution for traditional and Roth IRAs can produce large earnings well into your retirement years.
As for the 401(k), the contribution limit increased by $500 for 2018, making the limit $18,500. However, the catch-up contribution for savers over 50 is $24,500. Be sure you’re not missing out on this opportunity.
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2. Risk-averse? Don’t forget about 401(k) cash accounts
Not everyone feels comfortable placing their money in the market. If that’s the case, Barry Bigelow, a lead advisor with Great Waters Financial, reminds risk-averse savers to opt for the 401(k) cash account option. Be sure to contribute at least the amount your employer is matching. That money will be safely waiting for you upon retirement.
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3. Maximize Social Security by waiting until 70 to withdraw
Opting to delay the withdrawal of your Social Security will greatly benefit you in the long run. Every month you choose to delay, your benefits increase by one-twelfth of 8 percent. More clearly, a $1,000 benefit that is delayed for three years will turn into a $1,241 benefit. Many retirement-aged individuals who elect to continue working for a few more years should take advantage of these savings.
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4. Consider downsizing your home
Let’s face it, the kids are out of the house. Maintaining and paying the property taxes for a home designed to raise a family of five is simply no longer necessary. Although many retirees dread the idea of downsizing, it may be just the ticket if you aren’t financially prepared for retirement. Selling your home, paying cash for something smaller and more suitable, then investing or stashing away the remaining equity can make huge improvements towards the financial outlook of your retirement years.
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5. Work with a financial advisor to add 3% to your portfolio
You may believe that managing your own investment portfolio is serving you just fine, but a financial advisor has news for you. According to both Bigelow and Vanguard, working with a financial advisor can up the ante of your portfolio by a full 3%.
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6. Avoid sequence risk
It’s called sequence-of-return risk and it can make or break your retirement. Withdrawing funds while your investments are simultaneously receiving low or negative returns could literally ruin your portfolio. Timing is everything. For example, many retirees who had to make withdrawals during the economic downturn in 2008 and 2009 have still not fully recovered.
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7. Create a realistic and reasonable budget
How much do you really need to live a happy and full retirement? The age-old advice of creating a realistic and reasonable budget is still around for a reason. Furthermore, understand that you will receive a certain amount of Social Security every single month. Between that guaranteed money you’ll be receiving and the savings you have in retirement accounts, you may be better off than you initially realized.
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8. Consider making some lifestyle adjustments
Bigelow notes that “You become a product of the habits that you build in your 20s and 30s.” If you’re wildly spending money and not saving in your early adult years, the likelihood of doing so in your later adult years is not realistic. Consider shifting your lifestyle to avoid the ‘keeping up with the Joneses’ mentality. This shift could mean the difference between a plentiful and comfortable retirement or not.