Today you need to go to work. This weekend you have to run a
few loads of laundry. And next week you need $1 million in savings so that you
can retire. Okay, maybe not literally, but that’s how close retirement can
start to feel once you hit your 50s. Thankfully, your real-life to-do list
probably isn't that dire.
With a decade (or more) of working years ahead, you still
have time to maximize your retirement savings. Here are some expert suggestions
on how to save for retirement as your years in the workforce wind down.
Up your retirement account contributions.
Zaneilia Harris, of Harris & Harris Wealth Management in
the D.C. area and author of Finance ’n Stilettos, points out that once you turn
50, the IRS lets you put more pretax dollars into your retirement account with
“catch-up contributions.” The exact dollar amounts will change annually, but
here’s the breakdown for 2022: Those under 50 can put $20,500, pretax, into a
401(k), 403(b), 457, or TSP plan. Anyone 50 or older can make a catch-up
contribution on top of that, up to $6,500, pretax.
Calibrate your expectations.
Having $1 million in savings is one broad-strokes retirement
rule, but you may want more (or less) depending on where you want to live,
whether you plan to travel, etc. To ensure you don’t hit retirement age with
too little in the bank, you’ll want to calculate an estimate now if you haven’t
already. For specific guidance, Stefanie O’Connell-Rodriguez, author of The
Broke and Beautiful Life and founder of Statement, suggests “meeting with a
certified financial planner or using an online retirement calculator to
estimate how much you’ll need to save based on your projected expenses in
retirement.”
Factor in real estate.
If your home is paid off, consider how costs of ownership
(maintenance, taxes, etc.) versus renting stack up. “Selling your home sooner
and becoming a renter might [free] up funds that you can invest in a more
flexible and liquid retirement portfolio,” O’Connell-Rodriguez says. One
real-estate note to keep in mind: If you’re planning to stay in your home, you
don’t get to count its value as part of your retirement savings.
Play it safer.
If the stock market crashes tomorrow, you don’t want your
retirement savings to crash with it. “Consider shifting away from higher-risk
investments to reduce your exposure to short-term volatility,”
O’Connell-Rodriguez says. (Lower-risk investments will generally have lower
returns, but they also tend to be more stable.) A target-date fund can help you
do this automatically, she says, “by shifting your investment holdings for you
based on how many years you have until retirement. It transitions you to a more
conservative portfolio as your target retirement date gets closer.”
Take stock of your health benefits.
It’s safe to assume that your health will decline as you
age—and you don’t want to get stuck draining your retirement savings (penalties
be damned) to pay medical bills. “Review your health benefits and improve your
plan as needed,” says Bola Sokunbi, author of the Clever Girl Finance books.
She points out that life insurance can offer security—just make sure you
understand the type of policy you’re buying. She prefers term-life insurance
over whole-life insurance, though the latter can offer tax benefits for
high-net-worth individuals. A certified financial planner can help you weigh
your options.
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