Traditionally, retirement planning picks up once age 50 rolls around. However, recent figures show that an astounding number of Americans that close to retirement age haven't even started yet.
The U.S. Government Accountability Office recently reported that most households approaching retirement have low savings, adding that nearly half of households led by individuals or couples aged 55 and older having no retirement savings accounts at all. If this describes your situation, you have a tough problem -- but not an impossible one. The key is getting advice and taking immediate steps to budget, save, spend and invest.
The first step is to define where you really stand financially. Consider speaking with a qualified financial and tax advisor to define your present financial circumstances. Such a meeting should take into account your household income, tax situation, debt and retirement assets in any form. Reviewing these factors can help shape your decisions about supersizing retirement planning for maximum safe returns. While a customized plan is generally the best way to approach shortfalls, here are some ideas to consider before the conversation.
Take the time to reevaluate your budget. To accelerate retirement saving and investing, you need to find the money first. Non-mortgage debt is a major retirement savings obstacle. Better budgeting can help you find the money to pay off debt quicker. Adjust your spending across the board so you can accomplish this while adding more money to savings over time.
- 401(k), 403(b) and most 457 plans, which will have a maximum annual contribution limit of18,000 in 2015
- Individual Retirement Accounts (IRAs) -- both Traditional and Roth -- which will have maximum "catch-up" contribution limits of6,500 (the regular5,500 limit plus1,000 for taxpayers aged 50 or over by yearend 2015)
If your employer matches your work-based retirement contributions, go for the maximum match.
If you have worked for multiple employers, take inventory of all retirement savings accounts you may have accumulated at each. If you haven't consolidated these accounts, get some advice on whether it may be wise to do so and the particular investment you should choose to help boost your savings. Also, keep track of your annual benefits estimate from Social Security. Even though Social Security is unlikely to sustain most people through a 20-30-year retirement, it's wise to know what you're owed and how you can increase and manage your benefits over time.
Still unable to find enough money to put away? Consider making a greater effort on the income side. Many individuals boost their savings through a second job or freelancing from home. Consult qualified financial and tax professionals to make sure you're handling this extra income correctly from a tax perspective and putting it in investments that make sense for you.
Downsizing to a smaller home or an apartment in a lower cost-of-living destination or deciding to move in with friends or family at minimal costs may also provide additional savings for retirement. But first, consider what you might get for your home. If you are able to sell a primary residence at a significant profit over your purchase price -- above $250,000 for a single taxpayer and above $500,000 for married taxpayers filing jointly -speak to a tax professional about ways to avert a significant tax liability.
Don't forget sale and moving costs. A good rule of thumb is that most spend about 10 percent of the sale price of the house in order to sell it, including real estate agent's commission, attorney fees to review and approve sale documents and any spruce-up expenses related to putting the house on the market. Also keep in mind that using a professional mover will run into the thousands depending on where you're going.
Keep downsizing across the board. If you don't absolutely need a car, commit to public transportation (if available) and rent a car only when you can consolidate trips or errands. Anything you buy, consider cheaper solutions or consider used items. Sell anything you don't need or donate it while getting proper tax documentation.
Finally, put proper financial safety nets in place. Make sure you have an emergency fund set up so you won't be forced to dip into savings to cover unexpected expenses. And don't forget insurance - having the right amount of property and casualty, health and disability insurance can protect your retirement nest egg from significant risk.
Bottom line: If you're over age 50 and not sure you can retire, learn where you stand, get some professional advice and build a realistic strategy.
Nathaniel Sillin directs Visa's financial education programs. To follow Practical Money Skills on Twitter: www.twitter.com/PracticalMoney