3 Retirement Income Planning Tips for the Late Starter

It’s easy to fall behind on retirement income savings. There are so many other responsibilities you face in life, from owning a home to paying off debt to raising children. Many people choose to put retirement on the back burner while they address more pressing financial obligations.

Did you get a late start on retirement income planning? You’re not alone. According to a recent GoBankingRates survey, nearly 57 percent of respondents over the age of 55 reported having less than $100,000 saved for retirement. That figure jumped to more than 70 percent for respondents ages 35 to 54.¹

However, if you keep retirement income on the back burner for too long, you may find retirement isn’t a viable option for you. The good news is there are steps you can take to boost your savings and prepare yourself for retirement. Below are three tips to help you get back on track with your retirement income planning.

Prepare for Medical Expenses

One of the biggest costs you may face in retirement could be health care expenses. According to a recent Fidelity study, an average 65-year-old couple retiring today could face more than $245,000 in out-of-pocket health care expenses in retirement.³ That figure includes costs for things like premiums, deductibles, copays and more.

You can prepare for these expenses by taking action today. One way to manage health care costs is to invest in your health. Start eating healthier and incorporate more activity into your routine. Give up smoking or any other unhealthy habits you may have. Talk to your doctor about resolving any lingering medical issues. By being healthy in retirement, you may be able to limit your health care costs.

Also, consider maximizing your health savings account (HSA) contributions. An HSA allows you to take a tax deduction for your contributions, grow your money tax-deferred, and then take tax-free distributions as long as the money is used for qualified health care expenses.

The best part is you can take your HSA with you in retirement. That means you can save today on a tax-advantaged basis for medical expenses you will face in the future.

Use the Catch-Up Provisions

One of the most effective ways to save for retirement is through the use of tax-deferred accounts, such as 401(k) plans and IRAs. When an account has tax-deferred status, you don’t pay taxes on your investment growth while the money is in the account. You pay taxes only when you take a distribution. In the case of the Roth IRA, you may not pay taxes at all.

Most tax-deferred accounts have limitations on how much money you can contribute every year. For example, in 2016 the 401(k) contribution limit is $18,000. The limit for Roth and traditional IRAs is $5,500.²

However, if you are over the age of 50, you can make additional contributions. You can contribute an additional $6,000 per year to your 401(k) and an additional $1,000 each year to either your Roth or traditional IRA.²

The catch-up contribution provisions could give you a powerful way to increase your savings rate. Examine your budget and your contributions to see if you can take advantage of these additional contribution opportunities.

Alter Your Plans

If you’re still behind on your retirement goals even after increasing your savings rate, you may need to reevaluate your retirement income plans. Working longer is one effective way to overcome a retirement savings gap. Those extra years of work will reduce your need for retirement income and give you more opportunity to save.

You may also consider working part time in retirement to earn income to cover some of your discretionary expenses, such as travel and entertainment. Also, look at downsizing. Moving into a smaller home or even a condo could reduce your housing costs, including insurance, utilities, maintenance and more.

A late start doesn’t necessarily mean you can’t retire. It just means you may need to take a different approach. Contact us to learn more about how you can still chart a course for reaching your retirement income goals. We welcome the opportunity to consult with you about your retirement income needs and goals.

¹http://time.com/money/4258451/retirement-savings-survey/

²https://401k.fidelity.com/public/content/401k/home/vpcontributionlimits

³https://www.fidelity.com/about-fidelity/employer-services/health-care-costs-for-couples-retirement-rise

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15708 – 2016/5/31