Congratulations, you’re 50 years old! You made it to the half-century mark and it’s time to throw a big, honking birthday party. But do it quick, before your financial advisor yanks away the punch bowl and adds a trio of not-so-fun items to your bucket list.
“The three things people need to do if hoping to retire in 15 years are save, save and save,” says Mark J. Snyder, a financial services professional based in Medford, New York. “And if your savings are very low, you may need to consider postponing retirement one to three more years — or taking an additional job and banking all of that extra income into your retirement fund.”
So much for buying a Harley and taking a six-month road trip. Because if you’re one of the many whose IRAs got wiped out during the Great Recession, or you simply kicked the retirement savings can down the road, you’ve got very little time to catch up.
That’s right: 15 years is a blip on the retirement investment radar.
Worse yet, many will join the ranks of today’s 50-year-olds with nothing pretty in the retirement kitty. Recent government statistics reveal that just 53 percent of the civilian workforce participates in or contributes to a retirement plan, according to the U.S. Bureau of Labor Statistics. And in the private industry subset, it’s even lower, at 48 percent.
Among the two major categories in the civilian workforce surveyed, only one — state and local government workers, at 81 percent — shows healthy participation rates.
Catching up isn’t a lost cause, so long as pre-retirees make a host of strategic commitments, experts say. But those will differ drastically from person to person and couple to couple.
“Everyone’s needs and goals are different,” says Maria Romano, senior vice president and regional manager with The Provident Bank in Freehold, New Jersey. “At age 50, some adults have children in college, so tuition comes into play — whereas others have passed the hurdle of secondary education and are looking closer at retirement.”
Another crucial factor involves segregating needs from wants — in fact, there’s no way around it.
“Your needs will include all day-to-day living expenses such as housing, utilities, food, transportation and out-of-pocket medical expenses,” says James Nichols, head of the customer solutions group at Voya Financial in Windsor, Connecticut. “Your wants will be ‘fun expenses’ such as travel, vacation and social activities — or discretionary items such as cars, recreational vehicles, second homes and other consumer goods.”
Wants can also get granular right down to expensive hair styling, housekeepers and landscaping — any discretionary spending that keeps you from aggressive saving. You can gain perspective on that by adding a third category: legacy-based wishes. “Categorize your wishes as gifts you would like to make to friends, family or even charity,” Nichols says.
And while 65 might represent your ideal date for hanging up your boots, you’ll likely need to keep the shoe polish out a little longer. “Delaying retirement can have a material and substantial effect on your retirement savings,” says Suzanne Shier, chief wealth planning and tax strategist at Northern Trust, and based in Chicago.
Shier offers an example: If someone with $200,000 at age 50 contributes the maximum $6,500 annually to an IRA, at 6 percent pre-tax growth, that comes to $630,000 by age 65. “But if you continue working and contributing until age 70, you could save an additional $250,000 for a total approximate value of $880,000.”
If you can’t squirrel away that much, or you’re not raking in much retirement savings via your paycheck, don’t forget alternative sources of funding that may sit right under your welcome mat. “You can access the equity in your home with a second mortgage — or consider selling your home and using some or all of the proceeds to boost your retirement savings,” Shier says.
Social Security will provide some financial cushion, though relying on it as the major source of income often proves a huge mistake. Instead, look as it as one lynchpin in a larger, organized savings and investment plan, says David Smith, a financial adviser at Somerset Wealth Strategies, based in Portland, Oregon.
Smith offers the hypothetical example of a couple that expects to receive about $30,000 annually in Social Security, along with modest pensions and work 401(k)s where they save a total of $9,000 a year. Starting with a base of $200,000 at age 50, and the goal of attaining $60,000 a year to maintain a middle-class lifestyle in retirement, “they have to increase their savings by an additional $300,000 so that this generates an additional $30,000 a year.”
So what’s the magic number in this 15-year sprint, assuming a modest return just under 4 percent? “They have to save a total of $15,000 a year for the next 15 years — $6,000 a year, or $500 a month — more than they now save,” Smith says.
Assessing your digits might sound about as tasteful as swabbing the toilet, but that’s where financial advisors come in. Getting a plan transforms looming retirement from a source of anxiety, or a vaguely realized target, into a bullseye your investments can hit.
“The first thing I want people to realize is retirement is not an age, it’s a financial number,” says Chris Hogan, author of the book, “Retire Inspired.” “I want people to stop thinking about how old they are and start thinking about how much money they are going to need to retire.”
Here’s one way to do this: “Spread your investments evenly across these four main types of mutual funds: growth and income; growth; aggressive growth; and international,” Hogan says. “By keeping your mix of funds equal, or close to it, you can take advantage of all types of market conditions and still protect your retirement from the ups and downs of stock market investing.”
Thus it’s always possible that with smart, strategic focus, you can make the sprint — and claim that motorcycle as a reward at the finish line. Granted, it might not be an expensive new Harley, but there’s nothing wrong with a used model that boasts just enough gleam and, like you, plenty of mileage left.
More from U.S. News
10 Ways to Play the Explosive World of Small-Cap Stocks
Avoid These 8 Rookie Investing Mistakes
9 Growth Funds That Will Turbocharge Your Portfolio
The 15-Year Sprint to Retirement originally appeared on usnews.com
