Catch Up On My Retirement Savings
In the past, you may not have been able to save as much as you wanted. But you’re in your peak earning years now, and hopefully you are (almost) done paying for college tuition. So this is an ideal time to catch up. Plus, there are special tax-saving opportunities for people over 50.
Odds are, you haven’t saved as much as you might have liked. Maybe you worked part-time and didn’t qualify for retirement benefits, or you took time out to raise kids or care for an aging parent and you lost salary as well as benefits. And, in general, men still earn more than women, so you may not have earned enough to save a lot.
Depending on the plan’s provisions, your employer may match a portion or even all of your contributions. That’s on-the-house money you shouldn’t give up.
The basics: Any earnings in these plans are tax deferred, which means you don’t pay any tax until you take the money out in retirement. In 2014, you can normally set aside a maximum of $17,500 in your 401(k), 403(b), or 457 plan.
The bonus: You can catch up by putting in as much as $5,500 more if you’re 50 or older. That’s a total of $23,000 you could be putting away for retirement.
If you are self-employed or work as an independent contractor, you have two basic ways to set aside pretax savings: a Simplified Employee Pension (SEP IRA), or an individual 401(k).
- With a SEP IRA, you can contribute up to 25% of your net self-employment income, up to a maximum of $52,000 in 2014.
- With a solo 401(k), you can contribute $17,500.
The bonus: In 2014 with an individual 401(k) you can catch up by saving an additional $5,500 if you’re 50 or older. Plus, your business can tack on an additional contribution of up to 25% of your compensation up to a total of $52,000. Including the catch-up amount, your maximum contribution is $57,500 if you’re 50 or older.
The basics: If you’re eligible, the Traditional IRA or Roth IRA contribution limit for 2014 is $5,500. Your eligibility to contribute to a Roth IRA is determined by your modified adjusted gross income. If you (or your spouse) contribute to a retirement plan at work, your ability to deduct your traditional IRA contribution is limited by your modified adjusted gross income.
With the Roth, you pay tax going in, but in retirement — when you presumably will be in a lower bracket — you can withdraw your money tax-free.*
The bonus: In 2014, if you’re 50 or older, you can make an extra $1,000 contribution to a traditional or Roth IRA for a total of $6,500.
Most financial advisors agree that to build an adequate retirement fund, you will need more than your company plan provides. You can ask your advisor what kinds of investments or savings plans would work best for you.
“When men make an investment mistake, they typically blame their broker or financial advisor — or they write it off as a bit of bad luck,” says psychotherapist Olivia Mellan, author of Money Harmony: Resolving Money Conflicts in Your Life and Relationships. “Women tend to take it personally and blame themselves.”
It’s no surprise, then, that many women tend to pick safe investments like money market accounts and CDs, which don’t lose money. Many shy away from investing in stocks. That can be a real mistake if you’re investing long-term for your retirement — even if you have less than 20 years to go.
Investing in stocks might seem daunting given the recent economic uncertainty and volatile markets. But stocks have a good chance to deliver higher returns — and outpace inflation — over long periods. Remember, you're investing for the next 10 years and beyond, not next year.
Of course, you don’t want to be overly aggressive since you don’t have as much time to recover from market drops as someone in her thirties. It is important to realize while stocks offer long-term growth potential, they may fluctuate more and provide less current income than other investments. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations. Speak with your financial professional to help ensure your portfolio matches your specific financial goals, objectives and tolerance for risk.
Once you’ve made allocations in your 401(k) or other retirement account — based on factors such as your age and risk tolerance — check your mix at least every six months. As stock and bond values fluctuate, you might have to tweak your account to rebalance it back to the investment percentages you originally intended.
We want to know where we’re headed. Having a savings target to aim for is a great motivator. So gather up your financial records: your current 401(k) and bank statements, your estimated Social Security benefit and your projected pension payout, if your company offers a pension. Next, estimate your retirement income needs with My Retirement PlanSM, our free online retirement savings calculator.
As a busy woman, you may be asking yourself, “How will I manage to do all this?” You do need to take control of your finances yourself. But if you’re intimidated by the prospect of planning or just need some help to make suitable choices, by all means, talk to a financial advisor.
- If you’re in your 50s and haven’t set aside enough for retirement, now is the time to bump up your savings.
- Try to maximize savings in your employer’s retirement plan, and open your own IRA.
- Keep a close watch on your portfolio.