These are your peak income years.
There’s no getting around it: Saving for retirement is hard. Investors in their 50s and 60s may still be contributing to their child’s college education or paying off a mortgage, and the job market in recent years has thrown speed bumps into some workers’ careers. As the golden years of retirement approach, now is the time to focus in on how your retirement savings stack up and where you want to be in 10 or 20 years. Here are 12 tips to fine-tune your retirement savings plan.
Make a plan.
How much do you want to save? Take the time to develop a realistic financial plan, and establish goals that are both measurable and achievable. “Your anticipated investment rates of return and annual contribution goals that you set need to be within reach,” says Ellen Jordan, senior vice president at Bryn Mawr Trust, a wealth management firm in Bryn Mawr, Pennsylvania.
Pay off consumer debt.
Carrying high-interest rate credit card debt is costly and derails your retirement savings goals. “Having as few hard costs as possible provides flexibility to weather unexpected ups and downs in retirement. If you haven’t already, 10 years or so before retiring, start working a disciplined plan to be debt-free before you hang it up,” says Derek C. Hamilton, certified financial planner at Indianapolis-based Elser Financial Planning.
Pay down your mortgage.
Do not plan to go into retirement with debt of any sort, says Ann Minnium, certified financial planner at Concierge Financial Planning in Scotch Plains, New Jersey. “Many plans I see would look great if only the clients didn’t have debt. I frequently tell clients in this situation to keep working until the debt is paid off. If you refinance, do not move into another 30-year loan. If you have 10 years left on your current loan, then move into a 10-year mortgage.”
Consider downsizing.
Are your kids out of the house? If you don’t need the extra two or three bedrooms, a smaller home can decrease living costs and allow for extra funds to be diverted into savings. “In many cases, the largest asset that a family owns is their primary residence. In order to make it through retirement without running out of money, downsizing is often an easy solution,” Minnium says.
Leave your asset allocation alone for now.
Many investors diversify between stock and bonds in their retirement portfolio, but new retirees should stay heavily invested in stocks even in their 50s and 60s. “The danger is in being or becoming too conservative with your investment allocation. I don’t recommend people change their allocation until they are five years away from retirement. … Once in retirement, the portfolio will likely be working for another 20-plus years, so there is no reason to get too conservative,” says Travis Sollinger, director of financial planning at Pittsburgh-based Fort Pitt Capital Group.
Keep allocation shifts gradual as you age.
Sollinger recommends maintaining an 80/20 stock-to-bond mix in a portfolio until five years from retirement. From there, investors can “gradually shift to a 60/40 stock-to-bond portfolio. If market volatility frightens you, keep a 70/30 or 65/35 mix until five years before retirement. Then shift to a 50/50 split. You give up potential gains, but you should experience less volatility in your accounts,” Sollinger says.
Increase your level of savings.
This is your last chance to sock away money for retirement. “People in their 50s and 60s usually are close to their peak earning years. Kids are grown and gone by this time usually, so max out your 401(k) at work and put additional savings into the bank and a brokerage account for investment,” Sollinger says.
Delay taking Social Security.
Current rules allow reduced benefits to begin at 62, before the so-called “full retirement” age of 66 or 67. You can receive a higher level of benefits the longer you wait to start. “It rarely makes sense to claim at 62, but most people do it anyway even though it could cost them hundreds of thousands of dollars if they are long-lived. Work with an experienced financial planner to understand your options. The rules are so complicated, even experienced and well-meaning Social Security agents can miss big opportunities,” Hamilton says.
Know your retirement plans.
If your employer offers additional plans such as nonqualified deferred compensation benefits, learn about your options. Many such plans allow for a one-time election to delay the payout and receive it in annual installments for five or 10 years, Minnium says. “In order to take advantage of the delay, you may have to make the election to delay at least 12 months before retirement or attaining age 55. Employees need to prepare for the NQDC payout because unlike a 401(k), it cannot be rolled into an IRA.”
Take control of your taxes.
Consider rolling into a Roth IRA. “Uncle Sam makes you pay tax on required minimum distributions, or RMDs, from traditional retirement accounts like IRAs and 401(k)s starting at age 70 1/2 for most people, which can push you into a higher tax bracket. If you’re in a lower tax bracket in years before that age, look into converting traditional IRAs each year to Roth IRAs. The conversion will be taxed, but any appreciation and future withdrawals would be tax-free,” Hamilton says.
Ask lots of questions.
“Be careful of anything that seems too good to be true. Guarantees are not what they seem to be. Read the fine print. Ask a lot of questions. Know that no investment is a sure bet,” Jordan says.
Keep your goals at the forefront.
Take the time to analyze the numbers to make sure you are on track. “See if you are saving enough. Think about what you want your retirement to look like, and make sure to put money away for yourself. If you are planning to retire in your mid-60s and have 10 years still to go, save as much as you can. This will help the often-emotional transition of earning income to spending down your assets easier,” Jordan says.
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12 Tips for Investors in Their 50s and 60s originally appeared on usnews.com
