Sometimes we talk up the power of saving early and compounding so much we unintentionally discourage those nearing retirement. A looming deadline for anything creates anxiety. When that deadline marks the end of your career, then it can get downright scary. Add to the mix this crazy thing called “finance” (aka “math,” which by some accounts connotes even worse feelings), and you have all you need for an explosive concoction of unease, unknown, and uncertainty.
This can lead to poor decisions, awful mistakes, and bad things in general. Those lucky few who've decided to invest in themselves (and their future) benefit from having a financial coach who knows the tricks to better preparing those in their 50s for retirement. It all starts by knowing how to avoid the many traps that can ensnare the inexperienced pre-retiree.
One of the most common traps is the false belief that it's “too late” to do anything about it. The emphasis on early saving makes it sound like preparing for retirement is best suited for young people, not those nearing retirement. In fact, for those ages 50 and above, the government has provided a special bonus to help your retirement saving efforts. Depending on your retirement savings vehicle, you can stash between $1,000 (for an IRA) to $6,000 (for a 401k) more per year beginning at age 50.
Do those amounts seem small to you? Consider this: If you added those catch-up provisions to you annual retirement plan contribution each year beginning at age 50, you'd end up with anywhere between $52,440 (for and IRA) and $314,639 (for a 401(k)) more when you retire at 70. That can easily account for one to several years' worth of expenses.
Ah, yes, expenses. Many say having a firm grasp of expenses represents the single most important factor of a successful retirement. We all know the rule of thumb is “80 percent of current salary” when estimating your retirement expenses. Rules of thumb are all fine and good when you're in your 20s, 30s, or 40s. By the time your reach your 50s, however, such rules can be, well, all thumbs. The fact is, annual retirement expenses peak in the early years of retirement and gradually diminish as we age. The closer you get to retirement, the better you'll be at determining exactly what your retirement annual expenses will be.
Which leads me to my last piece of advice: No later than five years before retirement, begin building cash reserves so, by the time you retire, you have two to three years' worth of annual expenses stashed away in cash. Why? You need to plan to spend 30 years in retirement, and that demands long-term investments. These types of investment tend to be volatile. The cash reserve will insulate you from the risk of invading this principle during a down market.
Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.
Your access to unlimited BenefitsPRO content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking benefits news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
