As retirement nears, it’s common to evaluate your nest egg and decide next steps. When only a few working years remain, you may be wondering if it’s worth saving. If you haven’t yet started, the process of setting aside funds might not seem effective. Any investments you make won’t have many years to earn interest. You might need to access your savings soon after retirement.
As you question if it’s too late to start saving, think about:
— How close you are to retirement.
— When you want to take Social Security.
— What you will need to be comfortable.
— How saving in your 50s and 60s could work.
[READ: 10 Important Ages for Retirement Planning.]
How Close You Are to Retirement
If you’re ready to retire and don’t have any savings, you could be facing a steep lifestyle change. Your current income will be replaced by Social Security benefits, if you’re at least age 62 and have paid into the Social Security tax system. You may need to lower your monthly expenses and downsize to a more affordable place.
You could decide to put off retirement for several years if you’re healthy and enjoy your job. You can use the time to start saving and prepare for retirement expenses. “It may seem trite, but it’s never too late to start saving for retirement,” says John Stoj, founder of Verbatim Financial in Atlanta. Some people may find it hard to save during significant stages of life, such as purchasing a home and putting kids through college. After passing those milestones, “The secret is to reallocate that spending to savings, not to different types of spending,” Stoj says.
When to Take Social Security
As you think about retirement and your income, it can be helpful to run numbers related to your Social Security benefits. “Make a plan to claim Social Security that suits you,” says Hunter Brockway, a financial planner with Boca Retirement Strategies in Boca Raton, Florida. “This decision comes from needs, health, marital status and goals.”
You can begin to draw benefits at age 62, though the amount will be 30% less than what you’ll be eligible to receive if you claim at full retirement age. “Your Social Security benefit grows at about 5% to 7% per year until age 67,” Brockway says. Any current and future cost-of-living adjustments could further increase that amount. “From age 67 to 70, your benefit continues to increase about 8% per year and maxes at 124% at age 70,” Brockway says. You can use a Social Security calculator to estimate your benefits in retirement.
[See: 10 Ways to Increase Your Social Security Payments.]
What You’ll Need to Be Comfortable
To plan for retirement, be aware of where your paycheck goes each month. Track your spending and look at your debts. Evaluate your income streams and monitor your net worth. You can find your net worth by adding up all your assets. Include your home, cash deposits, investments, savings and vehicles. Then subtract your liabilities from the amount. Liabilities might be your mortgage and any debts, such as student loans or credit card balances. These tasks will give you an idea of how much you bring in on a regular basis and how your wealth is impacted over time.
If you have a spending plan that you think will work for you in retirement, you can test it out now. Perhaps you estimate your retirement income will be $3,000 each month. Try setting up your lifestyle to accommodate that amount. If it doesn’t work, you’ll have time to reevaluate your income streams and design a different plan for the next stage.
[READ:Are Your Retirement Savings Ahead of the Curve?]
How Saving in Your 50s and 60s Could Work
Building up a nest egg can start at any time. Begin by prioritizing saving each month. “You should always pay yourself first when saving for retirement, especially if you’re in your 50s and 60s,” says Dan Cronin, founder and wealth advisor at Lifestyle Wealth Management in Kailua, Hawaii. “Every time you get a paycheck, you should earmark a certain dollar amount or percentage to pay yourself.” If possible, automate the transfer so you don’t have to remember to do it each month. Allocate the funds into investments, savings or an emergency fund.
If your employer offers a 401(k) plan, you can take advantage of extra contributions that are allowed for older individuals. For those who are 50 or older, the contribution limit for a 401(k) plan is $30,000 in 2023, and for a Roth IRA it is $7,500.
At any point in your working years, you can start building financial routines that will benefit you later. “Consider having no spend days on your calendar,” Cronin says. This can help you shift into a mindset that isn’t focused on purchasing new items. You might appreciate what you already have and find new uses for some of your household goods.
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When Is It Too Late to Start Saving for Retirement? originally appeared on usnews.com
