Catching Up on Retirement Savings

Retirement planning takes time. The earlier in life that you start planning for your retirement, the more likely that you will have enough funds saved up to retire comfortably. But this is not what usually happen to most people. Most of them end up trying to play catch up.

Although some people may regret not ever planning for their retirement earlier, all is not lost. There are some ways in which some people may be able to play catch up. But this would depend on how late one may have begun doing some catch up. It is still possible for people in their 40’s and 50’s to ensure that they at least have some money set aside for their retirement.

One of the ways that you can catch up with building up your retirement fund is by maximizing on your 401(k) contributions. People are now allowed to save up to $15,500 annually for their 401(k) contributions. This can be done on a pre-tax or post-tax basis. For people in their 50’s there is another provision that allows them additional contributions of another $5,000.

An individual at age 40 contributing the maximum amount to a 401(k) fund could accumulate as much as $1.2 million in savings by the time he reaches the age of 65. This is possible provided that the fund assumes an 8 percent return with no employer contributions involved. That alone may be a good enough catch up fund for your retirement. Availing the additional $5,000 option in contributions to the fund at age 50 would provide an additional savings of $147,000 by the time you reach 65 years old.

If you already own a home, you can also look into the equity on it for your retirement fund. Although the home is not usually considered as a primary source of retirement income, borrowing against the home’s equity might provide older individuals with some income that can be used for living expenses.

You might consider also selling your home and moving up to a smaller and less costly one. Availing of a reverse mortgage on your home may also be a possible option. It is a type of mortgage where a homeowner can borrow money against the home’s value where repayment is postponed until the homeowner dies or after the home is sold.

Other ways to play catch up on building up a retirement fund can include trying to tap into cash value of insurance policies that may no longer be needed. Considering some form of disability coverage may also be sensible in terms of protecting whatever income you may have already accumulated for retirement.

Without such a coverage, you might find yourself spending a lot on medical treatments which can eat up on your savings over time. Retirement planning for people in their 40’s or 50’s may already find themselves at a disadvantage. But with the right motivation to save and invest, it is still possible for them to retire comfortably.

 

 

Posted by Ardent Editor on Apr 23 2008 in 401k & Company Plans

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