Being able to live comfortably in retirement is a major life goal for most people. Saving enough money throughout your working years allows you to spend your retirement doing what you enjoy with the ones you love.
It’s never too late to start saving for retirement. Starting as early as possible is always a good thing, but most people are in the best position to boost their retirement savings in their 40s and 50s. That’s because this is when most people reach their peak earning years and generally start to have fewer significant financial responsibilities.
At Chatterton & Associates, we provide personalized retirement planning services to individuals and couples of all ages. In this article, we’ll discuss how to plan for retirement in your 40s and 50s so you can enjoy your golden years free from financial stress.
How Much Does the Average American Have Saved?
According to 2019 data from the Federal Reserve, Americans between the ages of 45 and 54 had a median retirement savings balance of $100,000.
Traditional financial wisdom suggests that most people should expect yearly retirement expenses of about 80% of their pre-retirement income. While most major expenses, including housing and commuting costs, tend to drop after retirement, healthcare costs usually increase. Your individual expenses in retirement will, of course, depend on your specific needs and situation, including your activity level, physical health, and lifestyle goals.
How to Determine Your Risk Tolerance
A savings account is a great place to start, but a comprehensive retirement plan should also involve investments in assets such as stocks, bonds, and/or real estate. This can help supercharge your retirement savings and even provide sources of passive income in retirement. But the right investments for you depend on your individual risk tolerance.
Investing always involves a certain amount of risk, but some investments come with much greater risk (and generally greater potential rewards). There’s no right answer when it comes to risk tolerance, and your investments should accommodate your individual comfort level. Your risk tolerance depends on a variety of factors, including:
- Your financial situation, including current income, expenses, and assets
- Your temperament
- Your individual goals
- Your experience with investing
- Your age, target retirement date, and time horizon
Ways to Boost Your Retirement Savings
1. Pay off Debt
Paying off your existing debt is one of the best ways to free up your cash flow, allowing you to contribute to your retirement savings more frequently and in higher amounts. Generally speaking, prioritizing “bad” debts such as high-interest credit card loans is a good way to reduce your long-term debt burden. This gives you the freedom to put a higher percentage of your future earnings toward retirement.
An experienced financial advisor can help you manage and pay down debts to further boost your retirement savings.
2. Take Advantage of Workplace Retirement Matching
Understanding and maximizing any retirement benefits offered by your workplace can significantly boost your saving potential. Many companies that offer 401(k) plans implement a system in which the employer will match employee contributions up to a certain percentage. Workplace matching formulas can vary quite a bit depending on your employer, so it’s a good idea to look into your workplace’s matching system to ensure you're getting the most out of your 401(k).
3. Utilize 401(k) Catch-Up Limits
All 401(k) plans have a set yearly personal contribution limit set by the IRS. However, individuals over the age of 50 are afforded higher limits through “catch-up contributions.” For example, the yearly 401(k) limit in 2023 was $22,500 for those under 50 and $30,000 for those over 50. That amounts to a catch-up contribution of up to $7,500.
4. Speak to a Financial Planner Who Can Create a Personalized Plan
Most Americans aren’t maximizing their retirement savings, largely because most people aren’t aware of the wide variety of options available to them, in addition to employer-sponsored retirement accounts. Meeting with an experienced financial advisor is an excellent way to learn about other types of retirement accounts, tax-efficient strategies, asset allocations, and more. At Chatterton & Associates, our experienced and compassionate financial planners can help you create a personalized plan that meets your specific needs and goals.
5. Set a Budget and Prioritize Saving
One of the most important, yet often overlooked aspects of successful retirement planning has to do with managing your expense to be able to spend less and free up more of your money to allocate to your savings and retirement expenses. By creating a budget and tracking your income and expenses, you’ll be able to see where your money is going every month. This allows you to evaluate how much you will need to save up to have a successful retirement.
6. Make 529 Contributions
For many families, 529 college savings plans provide a tax-advantaged way to set aside money for their child’s educational endeavors. But there are many cases in which the money saved in a 529 account ultimately isn’t needed.
In the past, using money from a 529 account for anything other than higher education came with significant penalties. Fortunately, an amendment to the Internal Revenue Code will allow account holders to transfer long-standing 529 accounts into a Roth IRA tax-free starting in 2024. However, a lifetime limit of $35K applies. The Roth IRA can help avoid future taxes and penalties. The 529 must be open for 15 years and annual conversions cannot exceed the annual contribution limits.
Chatterton & Associates Can Help You Save for Retirement
At Chatterton & Associates, we try to avoid the one-size-fits-all advice. We take the time to truly get to know our clients and understand their unique circumstances, goals, concerns, and needs. We’re honored to work with you and help you build a strong, personalized, and achievable retirement plan that helps you meet your goals and live the life you want now and in the future.
In addition to our financial and retirement planning services, we offer integrated tax planning, tax preparation, and estate planning to help you build, maintain, and ultimately pass on a financial legacy you can truly be proud of.
Contact us to get your questions answered and learn more about how we can help.
The Team at Chatterton & Associates