Pacific Coast Financial Planning Group
If You’re in the Homestretch Before Retirement, It’s Time to ‘Floor it’
As people enter their 50s and early 60s, earnings from work or other income sources often begin to reach a peak. In many instances, this also happens at the same time some expenses decrease – people might not need to worry about college tuition costs for kids, or perhaps they paid off the home mortgage.
Based on all of these factors, people may have more discretionary money available during this period than at any other time in life. You may or may not find yourself in this exact situation, but one thing is clear – the last decade or two you spend working is a great opportunity to build financial security for retirement.
This fact seems to hit home as individuals reach their 50th birthday. There is a greater sense of urgency about finding ways to stash more money away for retirement savings – either workplace plans like a 401(k) or other accounts such as an IRA. Whatever savings vehicle you use it makes sense to set aside as much money as possible to protect the ability to enjoy your desired lifestyle in retirement.
Those nearing retirement have a chance to ‘catch up’
While tax laws may restrict how much money you can direct to a workplace savings plan or IRA on an annual basis, once you reach age 50, you have more flexibility. Provisions in the tax code allow for “catch-up” contributions to these types of tax-advantaged savings plans. Assuming you’ve earned sufficient income in 2014, those who will reach age 50 and older can contribute:
- Up to $23,000 to a traditional 401(k), 403(b) or most 457 plans. By comparison those under age 50 are limited to contributions of no more than $17,500 per year.
- Up to $14,500 to a SIMPLE 401(k) plan (compared to the standard limit of $12,000).
- As much as $6,500 per year to an IRA (either traditional or Roth IRA or a combination of the two). That’s $1,000 more than is allowed for those under age 50.
The extra several thousand dollars you are allowed to invest in tax-deferred accounts can make a big difference if you take advantage of it year after year.
Making the most of your closing years of work
Maximizing retirement plan contributions and other savings targeted for retirement funding is critical as your working life winds down. It represents the last best chance for you to accumulate wealth to achieve your financial goals for your post-working years. Here are some things you might want to consider doing:
- Contribute as much as you can to your workplace savings plan. If your employer offers a matching contribution, you’ll want to at least contribute enough to fully capitalize on the match. If possible, contribute the maximum amount allowed.
- Add money to your IRA, and if possible try to build some money in a Roth IRA to take advantage of the potential of tax-free withdrawals later in life.
- Set additional dollars aside in savings or brokerage accounts if you’ve maximized contributions to retirement accounts.
There are many variables to think about when it comes to planning for retirement. Consider talking with a financial professional to help make sure you’re on track for your specific retirement goals.
Richard Fogg, CFP®, and his team know clients appreciate and value their unique individualized approach, experienced advice, and the outstanding level of personal service they receive. If you are looking for a financial advisor and a relationship based on loyalty and knowledgeable advice, they welcome the opportunity to meet and discuss your specific situation confidentially.
Pacific Coast Financial Planning Group,
a platinum practice of Ameriprise Financial Services, Inc.
12626 High Bluff Drive Suite 450, San Diego, CA 92130
Phone: 858-693-7556 • Fax: 858-408-2961
Ameriprise Financial and its representatives do not provide tax or legal advice. Consult with your tax advisor or attorney regarding specific tax issues. Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients.
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