Preparing for retirement can feel like running a marathon. In the beginning, you start out feeling hopeful, with great ambitions of winning the race. Toward the middle of the run, your energy may start to lag, and you switch to a slow-and-steady approach. By the end of the race you’re exhausted, but seeing that finish line spurs you to sprint forward and give it your all in the very end.
If you’re nearing the end of the “retirement marathon”, having that finish line in view can be highly motivating. You know that every effort you make now will pay off soon. For those of you past age 50, consider the following strategies to maximize the payoff once you hit retirement:
Take advantage of catch-up savings opportunities. If you have a 401(k) savings plan, continue to contribute the maximum pre-tax amount of $17,500 each year. On top of that, consider the $5,500 catch-up contribution available to savers over age 50.
Expand your savings opportunities by opening an IRA. Each year you can contribute $5,500, and it’s tax-deductible. On top of that, IRAs also offer catch-up contributions for those aged 50 or older, in the amount of an additional $1,000 per year.
Consider a tax-deferred annuity. The IRS does not place limits on contributions to this type of savings plan. Your investment can grow tax-deferred, and it will give you another source of income when you hit retirement.
Pay down debt. Try to enter retirement with as little debt as possible. Pay down current debts and avoid taking on new monthly expenses – especially those with high interest rates.
Do your research. Consult with a tax professional about tax-advantaged savings plans, so that you understand all of your options. Also consider your future tax liability based on your projected retirement income, so that you aren’t hit with any surprises to your budget later.
Consider lifestyle changes now. If you know you will need to live on a smaller income during retirement, start making the switch now so you can adjust to your new budget slowly. When you cut back on spending, you might also consider investing that leftover cash to better cushion your transition into retirement. Other lifestyle changes such as diet and exercise can impact your health, and potentially lower your healthcare costs down the road.
