Financial security in retirement doesn’t just happen. It takes years of hard work, savings dedication, planning and discipline. After all, Social Security benefits alone will not support you entirely in your golden years.
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Wall Street’s strong performance last year might have helped repair some boomers’ portfolios, but that doesn’t mean they are feeling comfortable about their future. According to the Employee Benefit Research Institute’s 2013 Retirement Confidence Survey, only 13% of workers are “very confident” about having enough money for a comfortable retirement while 38% are “somewhat confident.”
"Though it can be tempting to put off retirement planning, taking steps now will make things easier in the long run," says wealth management advisor Joe Wilson at TIAA-CRE.
Here are five tips from Wilson that can help boomers get their retirement back on track this year:
1) Catch up on Contributions to Your Retirement Account
Starting at age 50, you can contribute more money to your retirement accounts. With an employer-sponsored plan such as a 401(k), 403(b) or governmental 457(b), Wilson says you can contribute an additional tax-advantaged $5,500 beyond the normal limits (as of 2014). With an IRA, the extra "catch-up" is $1,000 per year after age 50, for a total of $6,500 a year.
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For example, as an employee, your regular 401(k) contribution limit is $17,500 in 2014. By adding the catch-up contribution your total saving can reach $23,000.
2) Learn about Social Security benefits
Retirees have many different options when it comes to withdrawing Social Security benefits and the best option depends on your financial situation.
To find out the best time to start taking your benefits, Wilson advises asking the following questions:
- Are you eligible for spousal benefits?
- Do people in your family tend to live a long time?
- How many more years do you plan to work?
- Are you concerned about beneficiaries?
You can claim benefits as early as 62, but it can pay to wait until full retirement age (FRA), which ranges from 65 to 67 depending what year you were born. Every year you wait past your FRA until age 70, the benefits increase, according to Wilson.
3) Create a Plan for Generating Retirement Income
The focus leading up to retirement is all about building savings, but when you enter your golden years, the mindset should shift to maintaining and budgeting.
To help make sure your savings can last you through all of your golden years, Wilson recommends creating a retirement income ‘floor’ which is the bare amount of savings you will need to cover essential expenses such as food, shelter, clothing and health care. To create a lifetime stream of income, Wilson says to consider taking some of the funds from your nest egg and investing them in an immediate fixed annuity when you retire, which will pay you a stream of income for life. The money that you don’t invest in an annuity can remain invested in equities and bonds when you are in early retirement.
4) Supplement a Late Start
If you got a late start on saving for retirement, now’s the time to get serious. If you find your nest egg a little sparse, Wilson recommends getting tight about your budget by taking cost-cutting measures like giving up cable, downsizing to a smaller home or working longer than originally planned.
If you have more time until retirement, Wilson suggests ratcheting up your savings incrementally: As a new year’s resolution, increase your retirement plan contributions by 1% a year. Maybe this year you contribute 1% of your salary, next year go to 2% and so on. In five years, you’ll be saving 5%, and you probably won’t notice the difference in your paycheck because you’ve done it in little increments.
5) Meet with a Financial Advisor
Meeting with a financial advisor regularly will help keep your savings on track. An advisor can help you figure out if you have enough savings to maintain your current lifestyle when you stop working and receiving a steady paycheck.
In addition, your advisor can help review the investments in your retirement portfolio. According to Wilson, if you’re too heavily invested in the stock market, your potential gains could be outweighed by the risk. On the other end of the spectrum, if you’re too conservatively invested, you could lag behind the rate of inflation.