In Your 50s? Don’t Forget to Up Your Contributions

5- Don't Forget to Max Contributions In Your 50s Header ImageLike every decade of life, the 50s comes with both perks and stresses.

You might be reaching the pinnacle of your career, both in terms of earning power and knowledge, but you might also be waking up in the morning wondering when you can feasibly escape from the rat race. Your kids might be starting their adult lives with promising futures, but you might also be struggling with the emotional and practical realities of having aging parents.

With so much going on, it’s no wonder that retirement planning often falls by the wayside. Who has the time? Most of us feel like we don’t.

But just like going to the dentist and getting some exercise, we have to make the time – and the effort.

Here’s why.

It’s now or never 

For many professionals, the 50s represents the peak. You may have advanced in your organization, reached the higher levels of your profession, or established yourself as an expert in your field.

The income you’ve worked so hard to earn can easily go to a thousand different places, but there’s a reason the government offers special tax breaks to retirement savers in their 50s.

Not to put too fine a point on it, but it’s now or never for retirement planning.

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Retirement: Are You Ready? The 50+ Retirement Plan Guide

By our mid-50s, most of us can’t reasonably count on significant salary increases or promotions – and the closer we get to 65 the higher our chances of retiring early, whether by choice or by circumstance.

That makes starting today all the more powerful. 

 Carpe Diem! Use your tax breaks

 If you have a workplace retirement plan or a tax-deductible IRA (not a Roth IRA), you get extra tax breaks for saving in your 50s.

  • For 401(k) plans: You can contribute an extra $6,000 over the $18,000 limit – for a total of $24,000 in tax-deductible savings
  • For 403(b) plans: On top of the extra $6,000 you can save in your 50s, you can also contribute an extra $3,000 after 15 years of service.
  • SIMPLE IRA or 401(k) plans: You can make an extra $3,000 in contributions over the $12,500 limit.
  • Traditional IRA accounts: You can make an extra $1,000 contribution over the $6,000 limit.

In other words, if you have both a workplace 401(k) plan and an IRA, you can make an extra $7,000 in tax-deductible contributions, provided you meet IRS income requirements.

 Even if you can’t contribute enough to get the full tax benefit, increasing your savings in this decade is generally a good idea.

How much should I save?

As with most things in personal finance, there’s no simple answer to the question of how much you should be saving.5- Don't Forget to Max Contributions In Your 50s Info Image

But think about this: as a retiree, you’re not just trying to get through your first 5 years. You’re looking at years or decades of relying on the financial foundation you’ve worked to build. The bigger that foundation, the more likely you are to have the retirement of your dreams.

Consider the math:

Let’s say you’re 50 years old and you’ve worked up to saving $15,000 every year. Today, your portfolio is worth $300,000 and it’s growing at an average of 7% per year.

What happens in the next 15 years?

  • Let’s say you get complacent and stop saving altogether. Your savings will continue to grow, and that’s to the power of compound interest you’re expected savings will be $827,000 at age 65.
  • If you continue to save at the same rate, you’ll be on course to amass $1.2 million by the time you retire (that’s the power of compound interest for you). Wow!
  • What if you find a way to increase your savings by a whopping $6,000 to take advantage of the extra tax break? In this case, you’ll be on track for $1.35 million at age 65. That’s an extra $150,775 earned on $90,000 worth of contributions!

Of course, this is a very simple example with a lot of assumptions: in reality, you’ll also be dealing with investment decisions, personal financial planning questions, taxes, and market cycles, which can all impact your returns.

But this example does demonstrate the incredible power of maximizing your savings: between your efforts and the effects of compounding, you can get much further by making a strong effort today, when your potential earnings are the highest and your time to retirement is growing narrower by the day.

Let’s get started!  

 No matter how big or how small the action you take is, recognize how important this time is to your future financial health.

So get started today: find out more about what you can do to maximize your chances of living the retirement of your dreams by downloading our free guide to financial planning in your 50s. Learn about key financial priorities, retirement risks, and how to make goals that align with your retirement dreams – at no cost!

Download our free guide today and get started on a path to a more robust financial future.

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Retirement: Are You Ready? The 50+ Retirement Plan Guide

Let Us Help!

We can discuss this topic and more at a complimentary appointment. As a bay area retirement planning coaches, we can give you a review and make suggestions based on your retirement objectives.

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Important Disclosures

Material provided by Augury Consulting. Augury Consulting is not affiliated with Vitucci & Associates Insurance Services or United Planners Financial Services (United Planners). The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by United Planners.

To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. Neither diversification nor asset allocation can ensure a profit or prevention of loss in times of declining values. United Planners does not render tax advice.

Securities and advisory services offered through United Planners Financial Services, member FINRA, SIPC. Pasquale Vitucci, CA Insurance Lic. # 0758212, is an Endorsed Agent of Vitucci & Associates Insurance Services CA Insurance Lic. # 0I06319. Vitucci & Associates Insurance Services and United Planners are separate and unrelated companies.
This page contains links to third-party company websites. By selecting a link, you will be leaving our website and launching a new browser window. These links are provided for informational purposes only and should not be viewed as an endorsement, sponsorship, solicitation or other affiliation with respect to any third parties. We are not making any recommendations or providing any advice on securities in particular or investments in general. Neither Vitucci & Associates nor United Planners Financial Services have reviewed the content of, and are not responsible for, the information or the results of the third-party websites.

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