If you’re nearing retirement age and your savings are looking a little thin, you’re not alone. Forty-six percent of baby boomers don’t have anything stashed away for retirement, according to a study by the Insured Retirement Institute, meaning nearly half of future retirees will have to strain their savings if they don’t want to work the rest of their lives.
The bad news is that if you’re in your 50s and just starting to save, you’ll have a tough road ahead of you to save enough to enjoy a comfortable retirement. The good news is that it can be done, and even if you can’t save half a million dollars by the time you’re 65, you can leave a decent chunk of change behind—which is a lot better than nothing.
Gathering steam after a late start
One advantage workers in their 50s have over younger workers is the benefit of catch-up 401(k) and IRA contributions. If you’re under 50, the 2018 annual contribution limits for 401(k)s and IRAs are $18,500 and $5,500, respectively. But for people age 50 and older, the annual limits are $24,500 and $6,500.
While this is a fantastic benefit to take advantage of, chances are if you’re struggling to save for retirement, it won’t be possible to suddenly start saving nearly $25,000 a year. In this case, the best thing to do is to determine what you can save, set a goal for yourself and stick to it.
The first step is to create a detailed budget of all your monthly expenses to see where your cash is going and how much you have left to save at the end of the month. This is also a good time to see where you can make cuts. Be honest with yourself here to decide how important these expenses are compared to retirement. Ask yourself if you absolutely need to eat out every week or if you really need to take the family on a fancy vacation every summer. If you’re especially serious about saving, you can even choose to downsize to a smaller home to potentially save hundreds of dollars a month on your mortgage.
Once you know roughly how much you’ll need to contribute to your retirement fund each month, start crunching some numbers. Retirement calculators are useful for giving you an estimate of how much you will have saved by the time you retire and how much you will likely need to have saved by the time you retire. Keep in mind that these numbers are just estimates, but they can give you a rough idea of ​​where you stand and how long your savings will last.
If your numbers aren’t where you want them, don’t be discouraged. Saving is hard work, and beating yourself up for not starting to save sooner won’t make it any easier. If you’ve cut your monthly expenses as much as you can and are still struggling to save money, you have a few other options.
Making the most of Social Security
One option you should consider is delaying claiming Social Security benefits, which will result in fatter checks each month. You can start claiming benefits as early as age 62, but for every year you delay past your Full Retirement Age (FRA) or the age at which you receive 100% of your eligible benefit amount, your benefits will be boosted. For example, if your FRA is 67 and you wait to claim until age 70, you’ll get an extra 24% on top of the full 100% you’re entitled to.
If you’re already going to commit to cash during retirement, that extra money can make a big difference. For example, say your FRA is 67 and the full amount you’re entitled to (or the amount you’ll get if you wait until age 67 to claim) is $1,200. If you instead delay claiming until you’re 70, you’ll get $1,488 a month. An extra $288 per month might not seem like a big difference, but it adds up to nearly $3,500 over a year — which is a lot of money when you’re trying to make every dollar count.
In addition to waiting to claim Social Security, you can also delay retirement for a few years and continue working as long as you can. This is not the most exciting option, but it can help you save a lot of money in a relatively short period of time. Because not only do you continue to contribute to your retirement fund while you work, but you’re still not depleting your savings.
For example, say you’re 50 years old with zero savings and want to retire at 65. If you contribute $300 a month and earn a 7% annual rate of return on your investments, you’ll have a total of $93,859 saved after 15 years. While this is a good amount of money (and much better than nothing), it will likely only last you a few years during retirement. If, however, you delay retirement by 10 years and work until you’re 75, continuing to contribute $300 a month earning a 7% return, you’ll end up with $236,241. And if you wait until age 70 to claim Social Security, you’ll get a boost in benefits there, too.
If your employer offers matching 401(k) contributions, you can earn even more by working a few more years. In this case, if your employer matches your monthly contribution of $300, bringing your total contributions to $600 a month, you’ll end up with $472,482 by age 75, compared to just $187,718 if you had retired at 65 your.
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When you’re lagging your savings and seeing retirement looming on the horizon, it’s easy to want to give up on your financial goals. But it’s possible to enjoy a comfortable retirement even if you started saving late, because a little planning and a lot of determination can go a long way.
CNNMoney (New York) First published September 28, 2018: 10:47 am ET
