If you’re turning 50 years old this year, remember: You’re
not getting older, you’re getting better. And so are your retirement savings
options. Once you turn 50, you’re allowed to add up to $1,000 in annual
“catch-up” contributions to your Individual Retirement Account and $6,500 to
your 401(k), 403(b), SARSEP or 457(b). So that means you can set aside $7,000
for your IRA (with the $1,000 catch-up contribution) and $27,000 for your
401(k) or 403(b) with a $6,500 catch-up contribution. But first you have to
find the money. Here’s are seven common ways to fund your catch-up retirement
contributions.
A financial advisor can help you create a financial plan for
your retirement savings needs and goals.
For an IRA, a worker putting 10% of their pre-tax earnings
into a retirement account would need to make $60,000 a year to hit just the
$6,000 annual contribution limit, which is several thousand dollars more than
the median U.S. personal income of $56,287, and well more than the earnings of
the half of U.S. workers making less than the median amount. With inflation
hitting 8.5% in July, plus the financial hits that older workers took during
the pandemic, finding the money for that extra $1,000 in catch-up contributions
can be a challenge.
For a 401(k), 403(b), SARSEP or 457(b), $27,000 (including
the $6,500 catch-up contribution) is 45% of a $60,000 salary.
The place to start hunting for that extra cash is by taking
a close look at your recurring monthly expenses, then trim from there. Every
dollar saved is better than $1 earned because whatever spending you cut leaves
you with after-tax money. For someone in the 25% tax bracket, that $1 of saved
spending equals $1.33 in wages.
And every $1 cut from your recurring monthly savings means
your savings continue every month, equaling $16 a year.
7 Ways to Fund Catch-Up Retirement Contributions
The biggest cuts are likely to come for your biggest
spending areas: housing, transportation, food, insurance and utilities, but you
can find plenty of other spending to trim, as well. Here are seven places to
start looking in your budget:
Bank and credit-card statements: Scrutinize every
line of your statements banking for recurring charges that you can easily live
without. This can include forgotten subscriptions to websites and publications,
credit-card insurance, overlooked maintenance contracts, gym memberships,
buyers’ clubs and so on. This kind of mindless spending can produce a
surprising amount of savings.
Utility statements: Comb through these to see if
you’ve got add-on charges you can cancel, such as maintenance contracts,
call-forwarding, insurance for devices that’s covered by your homeowner’s or
renter’s policy and others.
Cable, cellphone and internet: Ask whether there’s a
cheaper cable package that gives you the channels you use most frequently, and
whether there’s a discount if you sign up for automated payments. Your employer
may qualify for a discount to your cellphone service, and some fancy ringtones
actually charge a month subscription fee. Cable, phone and Internet providers
will look for deals they can offer to keep a current customer, then see if
another provider can beat it.
Comparison shop: Checking the latest offers on
Internet, cellphone, cable service and any kind of insurance is nearly
guaranteed to unveil savings – often without having to switch providers. A call
to your insurance agent my reveal discounts for age, good grades, being a safe
driver, eliminating add-on coverage and raising your deductible.
Housing: Refinancing a mortgage might not save money
at this point, but if you have a high home-loan rate because of past poor
credit when you took out the mortgage, see if your history has improved where
you can qualify for a lower loan rate. Cancel your lawn service and mow your
own yard, and ask whether adding things such as fire extinguishers or smoke
detectors will cut your homeowner’s insurance bill.
Food: Shop just once a week and check out your
store’s digital coupons and membership cards, switch to generics and buy
multiple packages when an item goes on sale. Packing your own lunch instead of
eating out is a classic savings maneuver, as is reducing your restaurant
dining.
Just save it: Many families don’t have any kind of
formal budget and tend to spend what they make while trying to save whatever
money is leftover at the end of the month. Instead, prioritize and automate
your savings so that money is sent to your retirement account before you even
see your paycheck. Then, spend what’s left, knowing you’re on track to meet
your savings goals.
Bottom Line
Workers age 50 and older can add up to $1,000 in annual
“catch-up” contributions to their Individual Retirement Accounts, and $6,500
for 401(k)s, 403(b)s, SARSEP or 457(b) plans. Creating a financial plan can
help you reach your retirement savings goals now to fund your golden years
later.
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