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Pump Up Your Retirement Savings

June 8, 2021

Have you reached middle age without accumulating much in retirement savings? Don’t stay stagnant. It’s time to make a plan that you can live with now, so that you can live your idealized lifestyle in retirement. While it may be more challenging to reach your retirement goals than if you had started in your 20s or 30s, there are some strategies to consider:

Reanalyze Your Retirement Goals

First, it’s important to thoroughly analyze your situation. One of our areas of greatest acumen is helping you to calculate how much you realistically will need for retirement, what income sources you may need to draw from, how much you have saved and invested, and how much you likely need to save monthly/annually to reach your goals. If you’re unlikely to save that amount, it may be time to change your goals.

If you have delayed beginning your retirement planning and saving, it is realistic to assume that you may need to consider postponing your retirement start-date so that you have more time to accumulate savings, as well as delay withdrawals from those savings. While leaving your job may be your primary motivator, you may find that you don’t want to leave the workforce altogether. Many retirees work after retirement at least part-time and many return to their company or field as consultants. Even a modest amount of income or workplace health benefits after your initial retirement can substantially reduce the amount you need to save and/or spend.

Depending on how long you delayed saving for retirement, it’s realistic to assume you will need to lower your lifestyle expectations for a while to bridge that gap — possibly traveling less, gifting less, or moving to a less expensive city or smaller home. One important caveat: If you have already started your Social Security benefit, or you are considering it, you’re going to need to do some financial planning before you implement employment and your benefit together.

Contribute the Maximum to Your 401(k) Plan

Your contributions, up to a maximum of $19,500 in 2020 and 2021, are deducted from your current year’s gross income. If you are age 50 or older, your plan may allow an additional $6,500 catch-up contribution, bringing your maximum contribution to $26,000. Find out if your employer offers a Roth 401(k) option and ask your accountant if you qualify. Even though you won’t get a current-year tax deduction for your contributions, qualified withdrawals can be taken free of income taxes.

If your employer matches contributions, you are essentially losing money when you don’t contribute enough to receive the maximum matching contribution. Matching contributions can help significantly with your retirement savings. For example, assume your employer matches 50 cents on every dollar you contribute, up to a maximum of 6% of your pay. If you earn $75,000 and contribute 6% of your pay, you would contribute $4,500, and your employer would put in an additional $2,250.

Look Into Individual Retirement Accounts (IRAs)

In 2020 and 2021, you can contribute a maximum of $6,000 to an IRA, plus an additional $1,000 catch-up contribution if you are age 50 or older. Even if you participate in a company-sponsored retirement plan, you can make contributions to an IRA, provided your adjusted gross income does not exceed certain limits.

Reduce Your Preretirement Expenses

Typically, you’ll want a retirement lifestyle similar to your lifestyle before retirement. Become a big saver now, and you enjoy two advantages. First, you save significant sums for your retirement. Second, you’re living on much less than you’re earning, so you’ll need less for retirement to maintain your lifestyle. For instance, if you live on 100% of your post-tax income, you’ll have nothing left to save toward retirement. At retirement, you’ll probably need close to 100% of your post-tax income to continue your current lifestyle. When saving 10% of your income, you’re used to living on 90% of your income. Remember, at retirement, your taxable situation changes, but your expenses are unlikely to go down significantly, if at all.

Move to a Smaller Home

As part of your efforts to reduce your preretirement lifestyle, consider selling your home and moving to a lower-cost one, especially if you have significant equity in your home. If you’ve lived in your home for at least two of the previous five years, you can exclude $250,000 of gain if you are a single taxpayer and $500,000 of gain if you are married filing jointly. At a minimum, this strategy will reduce your living expenses so you can save more. If you have significant equity in your home, you may be able to use some of the proceeds for savings.

Substantially Increase Your Savings as You Approach Retirement

Oftentimes, your last years of employment are your peak earning years. Instead of increasing your lifestyle as your pay increases, consider saving pay raises. Anytime you pay off a major bill, such as an auto loan or your (grand)child’s college tuition, take the money that was going toward that bill and put it in your retirement savings.

Restructure Your Debt

Check whether refinancing will reduce your monthly mortgage payment. Find less costly options for consumer debts, including credit cards with high interest rates. Systematically pay down your debts. And most important — avoid incurring any new debt when possible. If you can’t pay cash for something, don’t buy it. Large purchases often loom on the horizon. Opening a savings account for those types of purchases and making monthly deposits to address those needs when they arise helps to mitigate paying for those on credit.

Stay Committed to Your Goals

It’s imperative to initiate and maintain your commitment to saving. If you are planning to eliminate or at least reduce your debt or are wondering if you can afford to retire, we are happy to help you set a strategic plan in place.


Copyright © 2021. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete analysis of these subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.