by Kathleen Coxwell
On your marks, get set… RETIRE! If you are in your 50s or 60s, you are probably about 10 years from retirement (give or take). Maybe you are even just a year from retirement. Regardless of the exact timing, you are in the home stretch of a lifelong race to this exciting time of your life. Here are 15 things to do now if you are 5–10 years from retirement to improve your future:
1. It is Now or Never: Find More Money and Save It As a pre-retiree, this is your last chance to amass the savings you need to retire comfortably. You might be surprised by how much you can save when you are a few to 10 years from retirement. Pre-retirees should use the motivation of their looming retirement date to buckle down and save as much as possible. Cut expenses. Bank all tax returns, raises, bonuses, inheritances, or other surprise money. Consider a second job. Explore ways to create passive income. Save as much as possible.
2. Max Out Catch-Up Contributions If being just 10 years from retirement is not enough incentive, know that pre-retirees get extra tax incentives. The government encourages workers age 50 and older to save more than younger employees by increasing the contribution limits to 401(k) and IRA accounts. According to the IRS: Anyone over 50 can add catch-up contributions up to $6,500 to their 401(k) savings. That is in addition to the $19,500 contribution limit. So the total you can contribute to these accounts in a given year is $26,000 For an IRA, the annual contribution limit is $6,000, or $7,000 if you’re age 50 or older. Learn more about tax-advantaged catch-up contributions for when you are over 50.
3. Don’t Rely on Just a 401(k) — Open an IRA Too (or Vice Versa) Did you know that you can max out your contributions in multiple kinds of retirement accounts? Go for it! Can you set a goal of $33,000 if you are single or $66,000 if you are married? After 50 you can put in $26,000 to your 401k and $7,000 into an IRA. Are you married? Double those amounts to save $64,000 in tax-advantaged accounts each year. But, your savings don’t need to stop there. If you can save more, go ahead and sock the money away in taxable savings. You will be happy to have the cash later.
4. Expecting an Inheritance? Check in With Your Parents According to research from Charles Schwab, more than half of young adults (53%) believe their parents will leave them an inheritance, versus the average 21% of people who actually received an inheritance of any kind between 1989 and 2007. If you are banking on an inheritance to help you with retirement, you might want to have a frank conversation with your mom, dad, aunt, or uncle. Medical costs have risen tremendously and it is easy to find stories of families who have used up every last dime because they live longer than expected or they need to go into assisted living which can be tremendously expensive. You might also want to take steps to protect the inheritance. You could consider purchasing a long-term care insurance or life insurance policy for your parents.
5. Get Rid of Debt Debt can be a problem for retirement. It is best to split from the masses and try hard to pay it off before you stop working. According to the Employee Benefit Research Institute (EBRI), 77% of families headed by people ages 55-64 and over have debt. And, the average amount of debt is $108,011. In retirement, your income is normally reduced to a fixed level, derived from Social Security, pensions, and other retirement savings that have been amassed over the years. A fixed income means that you will not have more money tomorrow to pay off the debt than you do today. You will simply be paying more interest — wasting money every month you carry the debt. Here are 6 Ways to Have a Debt-Free Retirement. Try out a debt-free scenario in the NewRetirement Retirement Planner to really see the difference in your finances. Being 5 to 10 years from retirement means that you have time to tackle your debt. Now is the time!
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