On January 3, 1993, the Buffalo Bills miraculously pulled off a 41-38 overtime upset over the Houston Oilers in an AFC playoff game that remains the largest come-from-behind victory in NFL history. To this day, it is commonly referred to as “The Comeback.” Such an unbelievable, overcoming-the-odds story can provide some much-needed inspiration to those nearing retirement age with little to no savings.
Early into the second half of the game, the Oilers dominated the Bills to a seemingly insurmountable 35-3 lead. By then, hundreds of fans started to stream out of the stadium. But the game was far from over. Behind the stellar play of backup quarterback Frank Reich and a stout defense, the Bills stormed back and won in overtime on a 32-yard field goal.
When it comes to saving for retirement, many older adults find themselves in Buffalo’s cleats. According to a study by the Insured Retirement Institute, 42% of baby boomers have nothing saved for retirement. That means a lot of soon-to-be retirees may have to work for the rest of their lives if they don’t immediately jump start their savings.
There’s no easy way to put it. Anyone who waits to start saving in their 50s will have a tough hill to climb to achieve a comfortable retirement. However, not all is lost. It’s still very possible to mount a savings comeback and build a significant nest egg to make retirement more enjoyable.
Go from late-saver to max-saver
Workers age 50 or older have the advantage of catch-up contributions, an extra amount that you’re legally allowed to contribute into your retirement accounts. You can save up to an additional $6,000 in a 401(k) and up to an additional $1,000 in a Traditional or Roth IRA, for a total annual contribution limit of $25,000 and $7,000, respectively (2019).
Someone who starts saving at age 50 by maximizing their 401(k) with catch-up contributions could amass over $1.3 million by age 70 (assuming an 8% annual return). Of course, a savings target of $25,000 per year is a lofty goal for anyone.
One way to boost your savings is to reduce your expenses. Take a look at your budget and separate your “needs” (mortgage, car payment, etc.) from your “wants” (travel, dining out, etc.). Ask yourself which expenses you can eliminate or reduce. Maybe you can survive without cable. Or, you might be able to reduce your insurance rates by bundling your policies.
Another, perhaps less-attractive, option is to simply work longer. Though it may not be something you want to do, staying in the workforce for even just a few additional years can make a big difference. You will not only be able to save more, but also won’t have to take from your savings yet.
Consider delaying Social Security
If you do plan to work into your late 60s or later, then you may want to delay Social Security to receive a larger benefit. Social Security will likely be one of your primary sources of income later in life. You’re eligible to receive your full benefit upon reaching your Full Retirement Age (“FRA”), which is age 66 or 67 for most people working today.
You can though file for Social Security as early as age 62, but those who wait to file beyond their FRA until age 70, receive a delayed credit of 2/3% per month (8% per year), for a larger benefit by up to 32%.
For example, say your FRA is 66 with a full monthly benefit of $1,000. If you instead delay claiming until you reach age 70, you will receive $1,320 a month.
Downsize your home
Moving to a smaller, less expensive house can provide two major benefits.
For one, the profit from selling your home could be a significant financial windfall. Investing the proceeds from the sale can help increase the amount of income you generate from your investment portfolio over the course of your retirement.
Secondly, a less expensive home generally means lower living expenses. You can free up income as you allocate less money toward property taxes, maintenance, insurance and utility bills.
Meet with an adviser
Of course, you will have to answer the ultimate question, How much do I need for retirement? You can use an online retirement calculator to crunch some numbers yourself. But, keep in mind they generally give you rough estimates and should be taken with a grain of salt. That’s why it pays to meet with a financial adviser.
A financial adviser can thoroughly review your entire financial picture and construct a more detailed analysis. Further, he or she may be able to help uncover retirement solutions you haven’t yet considered. Most importantly, a financial adviser can help you build an appropriate investment plan for someone who has a short time horizon.
From choosing the right age to claim Social Security to figuring out where you want to live, there are many more important financial steps to take in your 50s to help you realize your dreams. You can find them in our free ebook, Your Money in Your 50s: A Retirement Planning Guide for Procrastinators and Avid-Savers. Click the button below to start reading: