The million-dollar question on every boomer’s mind is: how much money do I need to retire. All too often the answer to this question is, “I’m sure I need more than I have.” Investopedia reports that the median baby boomer has saved about $144,000 for retirement per the Transamerica Retirement Survey of Workers dated May 2020.
Part of the reason it is difficult to know how much retirement savings you’ll need is because no one knows how long they will live or what expenses they will incur along the way. Let’s face facts; the uncertainty of life makes it impossible to answer the question of how much money you’ll need in your golden years.
The one fact most everyone agrees on is that you can’t have too much money set aside. Boomers who have started saving late are anxious to make up for lost time. The good news is that there are things anyone can do to strengthen their financial prospects if they’re over 50 or even over 60 years of age.
1. Pay off debt and avoid new debt.
Imagine how much more money you could save if you weren’t paying interest to the banks on the debt you owe. As soon as is possible, you need to pay that debt off to free up your funds. Pay down debt immediately. This should be a top priority to take control of your finances.
CFP Malcolm Ethridge advises AARP reporter that paying off your house by the time you retire is a smart goal. He also suggests continuing to put the amount of your house payment into an account after you’ve paid off your mortgage for the purchase of a new car. Buying a car with cash is a smart way to pay less.
Check out this article on How to Eliminate Debt before you retire.
2. Invest as much as possible in your retirement fund matched by your employer.
It’s impossible to argue with the idea of contributing to your retirement plan at work when your employer is also contributing to your future. Invest the maximum to get the full benefit of employer matching. Boomers over 50 are eligible to invest as much as $26,000.
There is one important consideration with employer contributions that can make a difference. If your employer’s contribution is made with company stock, then poor company performance may negatively impact the benefits derived. If that is the case, then you might want to weigh your options and divert some contributions to a Roth IRA.
3. Establish an automatic savings plan.
Most financial advisors agree that setting up an automatic savings plan that takes the money out of your paycheck or checking account on a regular basis is the best way to force yourself to save the money you need. Without this type of automatic mechanism that sets the money aside for retirement, it is far too easy to spend the money you need to save for your golden years.
As mentioned above, you can send the money to an IRA or your company 401K. Once you’ve maxed out those contributions, then you can save the rest in a savings account.
4. Test your retirement budget and try living on it before you retire.
Anyone who has ever tried sticking to a budget understands how difficult it can be. Unexpected expenses and miscalculations about living expenses can blow a budget in a minute. That’s why it is a good idea to give your budget a trial run and see how realistic it is.
If you find the budget isn’t working, then it is time to consider downsizing. Buying a smaller home in an area with lower taxes can save a lot of money. Most empty nesters realize they no longer need to pay the high price for a 4 bedroom house in a good school district after the kids have left home. By cutting costs early before retirement, you can build up your nest egg and move forward with a solid budget.
5. Do your research on the best time to start taking your social security benefits.
Much has been written about the best time to take your social security. There is a lot of debate about whether you should take it at 62 or wait until you’re 70 to receive a maximum payout. No one can answer this question for you. It’s a personal decision that must take into account individual and family circumstances. Personal health, family finances, indebtedness, and career opportunities all play a role in deciding when you should officially start getting your social security benefits.
If you take your benefits early, then your monthly payment is about 30% lower than it would be if you waited to draw it out at full retirement age. Many boomers feel the need to take their benefits early if they lose their job and have difficulty finding a new one that is suitable.
6. Consider retiring later or working fewer hours instead of retiring completely.
There are many benefits derived from postponing retirement. Granted, after 30, 40, or even 50 years of gainful employment, many boomers are ready to call it quits and live completely on their terms. Interestingly, many people who enjoy their work but don’t want the long hours of a full-time job are turning to consulting opportunities. This is an attractive option to earn money from the substantial experience built up over a lifetime while slowing down a bit. The good news is that consultants typically earn top dollar without the hassle associated with a corporate job.
Other boomers are venturing out of their comfort zone to try something new and interesting. The benefits of these choices are many. Earning income, building a retirement nest egg, and postponing social security benefits without dipping into retirement savings make these options a financially smart and enjoyable plan for many people who are ready for a more enjoyable work experience.