Every boomer’s million-dollar question is, “How much money do I need to retire?” All too often, the answer is, “I’m sure I need more than I have.” According to the May 2020 Transamerica Retirement Survey of Workers, the median baby boomer has saved about $144,000 for retirement, according to Investopedia.
Part of the difficulty in determining how much retirement savings you will require stems from the fact that no one knows how long they will live or what expenses they will incur along the way. Let’s face it: the uncertainty of life makes predicting how much money you’ll need in your golden years impossible.
The one thing that almost everyone agrees on is that you can never have too much money saved up. Boomers who started saving later in life are eager to make up for lost time. The good news is that if you’re over 50 or even over 60, there are things you can do to improve your financial prospects.
1. Pay off debt and avoid incurring new debt.
Consider how much money you could save if you didn’t have to pay interest to the banks on the debt you owe. You must pay off that debt as soon as possible in order to free up your funds. Pay off your debts as soon as possible. Taking control of your finances should be your top priority.
According to CFP Malcolm Ethridge, paying off your mortgage by the time you retire is a wise goal. He also recommends continuing to put your house payment into an account after you’ve paid off your mortgage to save for the purchase of a new car. Buying a car with cash is an excellent way to save money.
2. Invest as much as you can in a retirement fund that is matched by your employer.
It’s difficult to argue against contributing to your retirement plan at work when your employer is also contributing to your future. Invest as much as possible to reap the full benefits of employer matching. Boomers over the age of 50 can invest up to $26,000 per year.
There is one important factor to consider when it comes to employer contributions that can make a difference. If your employer makes a contribution in the form of company stock, poor company performance may have a negative impact on the benefits you receive. If this is the case, you should weigh your options and consider contributing to a Roth IRA.
3. Set up an automatic savings plan.
Most financial advisors agree that the best way to force yourself to save the money you need is to set up an automatic savings plan that deducts money from your paycheck or checking account on a regular basis. It is far too easy to spend the money you need to save for your golden years if you do not have this type of automatic mechanism in place.
As previously stated, you can direct the funds to an IRA or your company’s 401K. After you’ve maxed out your contributions, you can save the remainder in a savings account.
4. Before you retire, put your retirement budget to the test by living on it.
Anyone who has tried to stick to a budget knows how difficult it can be. Unexpected expenses and miscalculations about living expenses can quickly deplete a budget. That is why it is a good idea to test your budget to see how realistic it is.
If you discover that your budget isn’t working, it’s time to think about downsizing. Purchasing a smaller home in a lower-tax area can result in significant savings. After their children have left home, most empty nesters realize they no longer need to pay the high price for a four-bedroom house in a good school district. You can build your nest egg and move forward with a solid budget if you start cutting costs early in your career.
5. Investigate the best time to begin receiving your social security benefits.
There has been much written about the best time to take your social security benefits. There is much debate over whether you should take it at the age of 62 or wait until you are 70 to receive the maximum payout. This is a question that no one can answer for you. It is a personal decision that must take individual and family circumstances into account. Personal health, family finances, debt, and career opportunities all play a role in determining when you should begin receiving social security benefits.
If you take your benefits early, your monthly payment will be approximately 30% lower than if you waited until full retirement age. Many baby boomers believe that if they lose their job and have difficulty finding a suitable replacement, they must take their benefits as soon as possible.
6. Instead of retiring completely, consider retiring later or working fewer hours.
There are numerous advantages to deferring retirement. To be sure, after 30, 40, or even 50 years of work, many baby boomers are ready to call it quits and live entirely on their own terms. Surprisingly, many people who enjoy their work but do not want the long hours of a full-time job are turning to consulting. This is an appealing option for earning money from accumulated experience over a lifetime while slowing down a little. The good news is that consultants typically earn top pay without the hassles of working for a corporation.
Other baby boomers are stepping outside of their comfort zone to try something new and exciting. The advantages of these options are numerous. Earning an income, saving for retirement, and deferring social security benefits without depleting retirement savings make these options a financially sound and enjoyable plan for many people who are ready for a more enjoyable work experience.