Even those approaching retirement without adequate funds can find ways to catch up and have a successful life after work.
Save early, save often.
That’s common advice, but many investors approach retirement without the funds they need. Can these future retirees make up for lost time and have a successful life after work?
Scrambling to build retirement savings late in the game is hardly the exception. A U.S. Government Accountability Office (GAO) study released in 2015 showed that about half of households age 55 and older have no retirement savings, and among those with some retirement savings, the median is $104,000 for households age 55 to 64. A common rule of thumb for retirement is to replace 80% of pre-retirement income, so even with Social Security payments providing some cushion, $104,000 in total savings won’t come even close for the vast majority of people.
To determine your retirement needs, it helps to know where you stand. The TD Ameritrade retirement calculator doesn’t just ask investors to input their current savings, income, and expected retirement dates; it also allows investors to consider their future lifestyle and current health to see how those factors might play into retirement planning.
Let’s look at some ideas—financial and otherwise—that investors approaching retirement can consider using to accelerate savings.
Think of your typical “fun purchases,” and then decide on two or three you can live without, said Dara Luber, senior manager, retirement, at TD Ameritrade. “Look at the top 10 things you currently spend on, whether it’s a cup of coffee, a gym club membership, or books, and prioritize. Find the ones that make you happiest. Give up the ones that don't, and put the savings away until retirement.”
Once you’ve identified ways to save, it can help to automatically deposit the savings into retirement accounts such as IRAs. Studies show that automatic deposits tend to help investors more successfully build savings.
Remember, where you live when you retire can have a significant impact on the savings you need. The TD Ameritrade calculator considers variables such as cost of living and taxes for the state you select. “Think about where you might want to retire and see if that’s still manageable given what you’ve saved,” Luber said.
Moving to a cheaper state isn’t for everyone, of course. But there are other ways to help savings last through retirement, even if you got a late start. For instance, once you reach the age of 50, the law allows for “catch-up” contributions to IRAs and 401(k) plans. With IRAs, the catch-up contribution is an extra $1,000 a year starting at age 50, and the catch-up contribution for a 401(k) is $6,000. Investors who can make the maximum contribution should start doing so as soon as possible to maximize retirement savings, Luber said.
Investors approaching retirement without enough savings might want to consider finding an income stream to help fill the gap once they leave their jobs. This might mean investing in an annuity or working part-time in retirement. For instance, as a valued source of knowledge an investor may be asked to stay on with a company post-retirement as a part-time consultant.
Working as an independent contractor doesn’t mean forsaking retirement savings. Those who take that path can consider self-employed retirement plans.
Online retirement calculators can help, but it’s also important to find someone who truly understands your needs, your current situation, and your risk tolerance. “Have conversations with the right people,” Luber said. “That human touch is really important.”
Retirement planning isn’t a set it-and-forget it proposition. Your plans take thoughtful care, and the help of professionals.
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