A special birthday
The year you hit the half-century mark, you also net more-aggressive ways to save in your retirement accounts:
- In workplace plans such as 401(k)s or 403(b)s, you can stash up to $6,500 (for 2021) above the standard annual limit. Check your plan provisions as some 403(b)s and 457 plans have special catch-up provisions that would allow you to save more.
- In individual retirement accounts (IRAs), you can boost contributions by $1,000, for a total stash of $7,000 a year.
Those extra sums can add up: Saving an additional $6,000 a year at age 50, and continuing until retirement at 67, could turn into about $185,000 more for your future, assuming an average annual rate of return of 6%. (Keep in mind that markets go up and down, and exact rates of return are never guaranteed.)
Empty nest? Downsize now
Many people wait until retirement to trade down to a more financially manageable home. However, if your children are now grown and out of the house, and you no longer need so much space, consider downsizing now so you can realize savings sooner.
According to Boston College’s Center for Retirement Research, moving from a home valued at $250,000 to one that costs only $150,000 could generate savings of $3,250 a year, assuming annual maintenance expenses equal to 3.25% of home value each year.
Even with increased opportunities to save more, it may still be difficult to find money in your budget for those extra savings. So you may want to think about ways to bring in additional income by snagging a side hustle. Drive an Uber or Lyft in your spare time? Start a dog-sitting business or rent out a spare bedroom through Airbnb? If it fits with your current lifestyle, it could net your future more cash.
If your retirement dreams include sipping cocktails on a remote beach, there’s no need to abandon those plans if you don’t have enough savings … yet. Instead, consider delaying your retirement start date if you can. Working just two years more could boost your nest egg by 12%, assuming 6% average annual returns. (If you take a $100,000 portfolio, for example, and increase it by 6% a year, you’ll have $112,360 after two years).
Be Social Security smart
If you’re worried your savings won’t last, make sure to maximize your Social Security benefits. You’re eligible to start tapping the benefit as early as age 62—but you’ll pay for the privilege with smaller monthly checks. If you don’t start taking your benefit until your full retirement age (now between 66 and 67, depending on when you were born), you can boost your monthly benefit significantly—about 8% more for each year you wait. And if you can hold out until age 70—the longest you can wait before having to collect—you’ll lock in a significant premium for the rest of your life.