How to save for retirement in your 40s, 50s, and 60s

How to save for retirement in your 40s

How to save for retirement in your 40s, 50s, and 60s

Let’s start with the good news: studies1 show that your income peaks between the ages of 45 and 54. You’ll potentially have more money than ever – but you may also have unexpected or unwelcome expenses, divorce2.

At this age you might also put retirement planning on the backburner in favour of more pressing financial commitments, such as your mortgage and kids’ school fees.

Use these potential life changes as the impetus to re-evaluate your assets and income, and look at how you can maximise savings for your retirement.

In your 40s, retirement age is still some 20 years away and, while that seems plenty of time, your decisions now can help secure your financial future. Read on to find out how to save for retirement in your 40s.

Keep tabs on how much you’re ly to need in retirement by checking the retirement standards published quarterly by the Association of Superannuation Funds of Australia (ASFA). Calculate this against your own super balance to give you an idea of how soon you’ll be able to say goodbye to the 9 to 5.

According to the Association of Superannuation Funds of Australia, by the time you reach 49 you’ll have between around $87,500 and $145,0003 in your super account.

The same group estimates singles will need retirement savings of $545,000 for a comfortable retirement, while couples will need combined retirement savings of $640,0004.

Are you on track to getting there in the next couple of decades?

Set realistic financial goals

While your financial goals in your 20s and 30s may have been idealistic, as you get closer to retirement they should become realistic. It’s time to develop a clear plan for your savings, with achievable short, mid and long-term targets in working towards your overall retirement goal.

Live within your means

Your 40s are typically peak earning years, but with Australia in the grips of a recession, many things aren’t typical right now. One thing that’s changed is where we do our work. At the start of the coronavirus epidemic, more than 10.

5 million Aussies swiftly transitioned to working from home5, and many people are yet to go back to the workplace. While there might have been some initial expenses to set up a suitable home workspace, there’s also a reduction in day-to-day costs commuting.

Consider funnelling any of this cash into your savings instead, to actively save for your retirement in your 40s.

Become more mindful around spending on big-ticket items as well – before a splurge, try taking a day (or a week) to give yourself time to think about how much you really need the item. You’ll be surprised at how often you decide it’s not essential to your life, and the money you save can be added to your retirement savings instead.

Review your investments

Your super might be ticking along, but what about other investments? It’s not too late to start saving and investing. Work out what style of investor you are so you have a better understanding of how comfortable you are with risk. Then talk to a financial adviser about creating a portfolio that suits you, which might include property, shares and other investment classes.

Aim to be debt free

Entering retirement with debt means juggling repayments with a high interest rate, which will eat into your retirement income.

To enter retirement debt free, look at paying off your home loan before you retire. Preparing for retirement in your 40s might mean getting a better deal on interest rates or creating a budget that allows you to make extra contributions to your mortgage, above your minimum monthly repayments.

Make sure you pay off your credit card balance in full each month so you don’t accumulate interest. Be cautious about borrowing money that you won’t be able to pay off in a short period of time.

Update your insurance

For many people, COVID-19 has been a strong reminder of how much we value good health and wellbeing – and how quickly things can change. Having the right kind of insurance can help create peace of mind when you need it.

Review your private health insurance to make sure it’s still right for your needs, particularly if your circumstances have changed or you have a growing family. Income protection and life insurance help to protect you and your family if you can’t work due to injury or illness, so you can continue to pay the bills without dipping into your savings.

Plan for your kids’ futures

Your kids mean the world to you – we get it. But their education doesn’t have to come at the expense of your retirement. As part of your retirement planning, consider setting up a separate savings account to fund things your kids’ school and university fees, so you don’t have to dip into your retirement fund for their education.

Show your children how and why you’re cutting back on discretionary spending (meals out, trips to the movies) to make their long-term goals ( getting a job) a priority. You’re never too young to develop a healthy understanding of finances and budgeting.

1 Australian Bureau of Statistics (2018), Employee Earnings and Hours (All employees, average weekly total cash earnings, number of employees – age category, May 2018)
2 Australian Bureau of Statistics (2019), Marriages and Divorces, Australia 2018
3 Association of Superannuation Funds of Australia (2017), Superannuation Account Balances by Age and Gender
4 Association of Superannuation Funds Australia (2018), ASFA Retirement Standard
5 Roy Morgan, Hard To Switch Off Work For Many Australians Working From Home


How To Save For Retirement When You Are In Your 50s |

How to save for retirement in your 40s, 50s, and 60s

The 50s are crunch time for saving for retirement. If you set a retirement savings target but have been neglecting it, you need to dust it off for a careful review.

“You should be looking at your plan periodically, at least every three years,” says retired certified financial planner Dick Bellmer, a past president of the National Association of Personal Financial Advisors.

Once you’ve reacquainted yourself with the financial destination you want to reach, take these steps in your remaining pre-retirement years to make sure you get there.

First item for consideration: your savings and investments thus far. Hopefully, you’ve been stashing away money consistently, making maximum contributions to 401(k) plans and IRAs, as well as other accounts.

How much is enough? That depends on your lifestyle and expenses, potential medical bills and the kind of support you’ll have from, say, a pension plan and Social Security.

As you review your savings goals, be careful not to set the bar too low. Use a retirement calculator to get a better idea of how much you might need to save.

If you need some assistance, call in the experts. Consider meeting with a fee-only financial adviser who can make sure you’re on the right track.

2. Tackle debt

One thing that can keep you from saving for retirement is lingering debt. By the time you’re 50, one big debt hurdle you may have left to clear is your mortgage.

Once upon a time, mortgage-burning parties were a fun way to celebrate the achievement of owning your home free and clear. But that rite of passage is becoming less common. A 2017 study from Fannie Mae found that less than half of Americans between the ages of 60 and 70 have a mortgage when they retire.

Without a mortgage to pay for, you could focus on saving or investing in the stock market. Paying off your home will ly take time, but in the long run, it’s worth it.

If you didn’t make saving for retirement a priority early in life, it’s not too late to catch up. At age 50, you can start making extra contributions to your tax-sheltered retirement accounts (called catch-up contributions).

Younger workers can only contribute $19,500 to their 401(k)s and $6,000 to their IRAs in 2020. But Americans age 50 and up can contribute up to $26,000 in a 401(k) and up to $7,000 in an IRA.

An emergency situation may force you to dip into your retirement savings (especially if you haven’t set aside enough money for emergencies). Just keep in mind that tapping your 401(k) or IRA before age 59 1/2 will cost you. There are exceptions, but in most cases you’ll pay a 10 percent penalty for an early withdrawal.

4. Create a Health Savings Account

Another important step to take is preparing to cover unexpected medical costs. Large medical bills can quickly deplete a lifetime of savings.

A couple in their mid-60s will need $285,000 to cover health care costs in retirement, according to a 2019 Fidelity Investments estimate. Then there’s the stratospheric cost of extended care at nursing homes.

A report from Genworth says the median annual cost of a semi-private room in a nursing home was $89,292 in 2018. With that in mind, retirement planning must include some consideration of future medical costs.

One option is long-term health insurance, which pays for extended medical care, including such things as nursing and assisted living. If you qualify, you should also consider opening a health savings account. This will reduce your taxable income.

Your savings will grow tax-free and once you turn 65, you can make withdrawals without paying any penalties or taxes (savings are only taxed if use the money to pay for anything besides qualified medical expenses).

Before choosing an account, you will want to shop around to find the best features for you, low fees or low minimum balance requirements.

5. Make the most of Social Security

The earliest you can start taking Social Security is technically age 62. But at 50, it doesn’t hurt to start thinking about your plan for collecting benefits. You can use Bankrate’s Social Security calculator to estimate your benefits.

Experts say most people take Social Security too early. That’s a mistake. Delaying retirement doesn’t just give you the potential to earn more. It also affects the size of your monthly benefit checks. Elijah Kovar, co-founder of Great Waters Financial in Minneapolis, says that by drawing Social Security at 70 instead of age 62, your monthly benefit amount rises by about 76 percent.

Waiting to collect Social Security, Kovar says, is also a good idea if you’re married and you earn more money. If one spouse outlives the other, the surviving spouse keeps the larger Social Security benefit. By having the higher earner wait to claim their benefits, you’ll have a bigger pot to pull from in retirement.

Another important consideration when deciding when to take Social Security is your tax situation. Kovar says from a tax standpoint, it’s the best source of income we have outside of Roth IRAs. Maximizing your Social Security benefit also comes down to implementing strategies that will lower the amount of income that’s subject to taxation, donating assets to charity.

6. Generate income beyond investing

Your investments are ly a stream of income you plan to use in retirement. Besides your portfolio and retirement savings, however, you should think of other ways to increase your earnings, getting a side hustle.

A 2018 Bankrate survey found that 37 percent of Americans have a side job. Freelancing or serving as a consultant can provide additional earnings if you’re behind when it comes to saving for retirement. And it’s less risky than alternative routes buying an annuity.

This article was updated in November 2020 to account for contribution limit changes.

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