5 Ways To Catch Up on 401(k) Retirement Savings after 50
If you’re behind on your retirement savings and are unsure how to make a difference at this point in your life, it’s easy to want to give up.
The truth is, with planning and determination, it is possible to enjoy a comfortable retirement. Just follow these 5 steps below, and you’ll be amazed at what you can save in the years to come.
#1 Maximize Annual 401(k) Contribution Limits
With retirement getting closer, now is the time to plan on maximizing your 401(k) or other workplace contributions. The same applies if you have an IRA.
In 2019, the additional annual contribution limit for 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will stay the same for employees age 50 or older — $6,000.
This means if you are 50 or older, the annual contribution limit is $25,000 this year, all of which reduces your taxable income now.
While most people won’t be able to save $25,000 for retirement each year, upping the current amount you’re contributing and stretching yourself a bit may make a big difference in your retirement lifestyle.
Investing just $10,000 more each year with a 7% annual return can add up to around $268,000 in 15 years’ time.
And, if you are married and you’re both 50 or older, you and your spouse can save $50,000 each year for retirement.
If you feel like you haven’t saved enough over the years and aren’t sure anything you do will help make up for it, don’t think maximizing your contribution limit now can’t make an impact in your retirement savings. Let’s look at these examples:
Mary is 53 years young. She’s planning on retiring at 70 and currently has $100,000 in her 401(k). Mary finds a way to save the $25,000 maximum contribution limit this year and every year until she’s 70. Let’s say she earns 7% annual rate of return on her investments. At the end of 17 years, she’ll have a little over $1.1 million saved for retirement.
Bob is also 53, plans on retiring at 70, and currently has the same $100,000, as Mary in his 401(k). Bob finds a way to bump up his current savings, but he only saves $15,000 this year and every year until he’s 70. With a 7% annual rate of return, he will have saved around $810,000 for retirement.
The above examples do not include annual employer contributions and profit sharing. If added, estimated ending balances and differences could be much greater.
Mary saved $1.1 million. Bob saved $810,000. For many people, the difference of $290,000 may have a significant impact on their retirement lifestyle.Take a moment to think about what would you do with the extra money come retirement time.
#2 Delay Retirement a Few Years
If you are behind on saving for retirement, delaying your retirement date a few years may make a difference in getting by in retirement and having enough.
Let’s say you are 50, have no savings at all, and you want to retire at 65. If you contribute, starting this year, $500 per month and earn 7% annual rate of return, you’ll have a total of $161,328 saved after 15 years. If you delay retirement by 5 years, and continue contributing $500 per month earning a 7% return, you’ll have saved a total of $263,191.
#3 Roll Over Old Workplace Retirement Plans
If you have changed employers over the years, it’s likely you have some retirement savings accumulated from previous jobs.
If you do, you might want to gather up all your 401(k) plans from previous employers and roll them over into one plan for optimal growth. It will also help you track your savings easier having everything in one plan.
Just make sure to choose a plan with the lowest, most manageable fees. Or seek third-party advice to help you make the best rollover decision possible.
Before you make your move, click here to discover the 5 Costly 401(k) Rollover Pitfalls.
#4 Avoid Target Date Funds
A majority of retirement account investments are in target date funds (e.g., 2020, 2030, or 2045 funds), also called lifestyle funds and retirement date funds.
They are structured to automatically reallocate as you move through different life stages. As you age toward your target retirement date, the funds shift toward more conservative investments to protect your money.
For many 401(k) investors, this sounds like a win-win. Invest your money, and let it do its thing until retirement.
However, target date funds are actually riskier than many people perceive.
An article titled Global Financial Crisis and the Performance of Target-Date Funds indicated that on average, target date funds (like 2030 or 2040 funds) invested 75% in stocks, generating average losses of over 30% during the 2008 financial crisis. Investors planning to retire in 2010 suffered significant losses because 2010 target date funds increased their common equity exposure in 2007.¹
Morningstar analyst Jeff Holt recently commented, “In the long run, the biggest risk in target-date funds is that they won’t meet investor expectations for avoiding losses.”²
By quarterly rebalancing your retirement account, you’ll lower the risk of your account underperforming due to target date funds that may not manage downside risk.
It seems like a simple solution, yet:
- Over 80% of retirement plan participants fail to rebalance³
- 92% have no idea what they’re paying in fees⁴
- Only 9% have set up auto-rebalancing features where they’re available⁵
Another reason we recommend avoiding target date funds is, because they are based on the date of retirement, they fail to take into consideration that not all investors are created equal.
If you’re younger and plan to retire in 2050, you’re told to select a 2050 fund. If you’re older and wanting to retire in 2030, you’d select a 2030 target date fund. What this means is investors are grouped solely based on their expected retirement date–location, age, profession, salary, risk tolerance, goals, and objectives are NOT taken into consideration.
Basically, investing in target date funds and not actively managing your retirement account is equivalent to saying there’s a one-size-fits-all investment strategy that works for everyone.
That makes no sense.
If you are currently in a target date fund, we suggest moving away from this option and better utilize all the options available in your workplace retirement plan. At the very least, quarterly rebalance your account.
#5 Seek Third-Party Expert Advice Sooner Rather Than Later
A recent Morningstar report shows that participants who received expert guidance had as much as 40% more income during retirement versus those who received no help at all.⁶
If you don’t think you have enough saved to warrant seeking third-party expert advice, or you think it won’t make much difference, take a moment to ponder this: What would your retirement lifestyle look like if you had 40% more income than planned?
Chances are it may make a huge difference. Perhaps it might allow you to go on vacations instead of taking staycations. It might also help ensure true retirement freedom, without the need for part-time work.
Check out our retirement calculator to see how much you may have at retirement and calculate how professional help may improve your future retirement income.
Not sure where to start looking for third-party help with investing and reallocating your 401(k) or other workplace retirement plan account?
Many people are taking advantage of the recommendations provided by 401(k) Maneuver™ that may help to optimize their workplace retirement accounts.
It is designed with busy people in mind, so it is incredibly efficient.
By receiving your report, privately via email, you can have clarity on how to rebalance your 401(k) and the confidence to go for it each and every quarter.
The two primary objectives of 401(k) Maneuver™ are to improve your account performance and better manage downside risk when times are tough.
Discover a brand-new approach to potentially supercharging your workplace retirement account. Sign up for 401(k) Maneuver™ today.
- The Global Financial Crisis and the Performance of Target-Date Funds in the United States – October 1, 2011
- Special Report: Fidelity puts 6 million savers on risky path to retirement, Reuters.com March 5, 2018
- Boost your 401(k) Returns by Rebalancing, 401khelpcenter.com
- Over 90% of Americans make this 401(k) mistake by Maurie Backman for The Motley Fool
- David Blanchet, Morningstar Analyst 2014, “The Impact of Expert Guidance on Participant Savings and Investment Behaviors”