The US Census Bureau notes that 50% of women and 47% of men aged between 55 and 65 years old have no personal retirement savings.
This is a wake-up call for the baby boomer and gen Z population. While it might seem a distant goal to start saving for retirement at 55, everything is possible, provided you have the will and determination.
Remember, you can’t change the past, but you can make a bright future for yourself and your dependents if you start saving for retirement as early as now. But how do you go about it when you are past 50 years old? Well, you have umpteen options.
Here is an in-depth guide to 401k contributions and their advantages in retirement planning.
What is a 401(k), and How Does It Work?
A 401(k) is an employer-sponsored retirement savings plan that is often funded by pre-tax payroll deductions.
In most cases, employers may opt to match employee contributions and invest the funds in bonds, stocks, or mutual funds.
There are two main types of 401(k) plans, including:
Traditional 401(k) Plans
Traditional 401(k) plans are funded by pre-tax payroll deductions. What this means is that your 401k contributions are taken directly from your paycheck before any tax deductions.
However, you’ll pay tax on investment earnings when you withdraw the funds (taxable income) in retirement. However, distributions start no later than 72 years, or 71½, for individuals who turned this age before January 1, 2020.
Roth 401(k) Plans
Also known as designated Roth accounts, Roth 401(k) plans are funded by after-tax dollars. Distributions for Roth 401(k) plans start at 59½ years or later.
Moreover, withdrawals (earnings) in this retirement savings plan don’t attract income taxes. However, you will pay taxes on the employer’s match when you withdraw part of it in earnings.
Can You Start a 401K at 55, and Is It Worth It?
Is it too late to save for retirement at 60 or 55? The answer is no, especially if you take the 401(k) savings plan approach. Under the new law, there are no age restrictions for 401k contributions, even among the 70+ years old folks.
Moreover, 401(k) plan contributions for 2022 and 2023 are relatively higher than IRA, making the former a better option.
Here is how to start 401k at 55:
1st Step
Get a 401(k) retirement savings plan offered by your employer as part of the benefits package, and pick a suitable investment method based on your risk tolerance. You can also have a late start with retirement planning by setting up an independent 401(k) plan if you’re self-employed.
Contribute pre-tax or after-tax deductions to your 401(k) account depending on the type of plan (traditional 401(k) or Roth 401(k)). At this stage, some employers may choose to match employee contributions.
3rd Step
Qualified earnings and contributions to your 401(k) account grow tax-free until you make a withdrawal. The earnings will yield from the contributions invested in a diverse portfolio that you chose at the first step.
4th Step
Start withdrawing your minimum distributions at 72 or 71½ years old if it’s a traditional 401(k) savings plan, and 59½ years old for Roth 401(k) plans.
It’s worth noting that the longer your money stays in a 401(k) retirement savings account, the higher the chances of appreciating significantly. For instance, a $60,000 balance in your 401(k) account will compound and double within around 10 years. That said, it will help if you seek professional retirement planning advice to understand which 401(k) plan is ideal for you.
Advantages of Opening a 401(K)
Catching up on retirement savings at 55 with a 401(k) plan is a good idea, given the numerous benefits that this approach brings, including:
High contribution limits: Compared to IRA distributions, 401(k) plans have higher deferral limits of up to $22,500 in 2023. Contributors of 50 years old and above can defer an extra $7,500.
Employer match: your employer may offer a matching contribution of up to 6% of your salary to the 401(k) retirement savings plan, increasing your earning margins.
Tax incentives on savings: Whichever 401(k) plan option you choose the contributions can be tax-deferred until withdrawal or tax-free upon distribution.
Earlier penalty-free access: You can start withdrawing funds from your 401(k) account if you quit your job when turning 55 or later without attracting any fines or penalties.
A loan option: A majority of 401(k) retirement savings accounts offer loan options of up to $50,000 or 50%, whichever is lower. The loan repayment period is 5 years, after which a 10% penalty applies for the early withdrawal.
Asset protection from creditors: Creditors won’t have access to the funds in your 401(k) account, no matter how much money you owe them. However, spouses may claim a share of the funds during a divorce.
Does Age Affect Annual Contribution Limits?
401k age requirements influence contribution limits to retirement savings account in various ways. For instance, the annual contribution limit for individuals aged 50 years and above is $30,000 in 2023, up from $27,000 in 2022. Moreover, the contribution limit for the employer match plus employee deductions is $73,500 if you are 50 years old and above in 2023.
Starting to Save for Retirement in Your 50’s: Is It Too Late?
So, you are a quinquagenarian and have no money in retirement accounts—is it too late to start executing your retirement strategy? Well, there is no time that is ever too late to save for retirement. In fact, the earlier you get a professional to help you with tax planning for retirement, whether you’re in your 30s or 50s, the better.
Ideally, you have a solid 10 years to get your post-career life in order if you start retirement savings at 55 and plan to stop working at 65. At the very least, you can contribute an equal amount to your employer’s match, and you’ll catch up on retirement savings.
Interested in taking a more active approach to your investment strategy? At Interactive Wealth, we offer Tactical Investment Management services designed to adapt to market conditions and take advantage of short-term investment opportunities. Discover more about our Tactical Investment Management Services and enhance your portfolio’s potential today
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So… You Have Nothing Saved for Retirement: How Can You Build Your Wealth in Your 50’s?
It’s possible to build wealth even if you clock 55 with no retirement savings in IRA or 401(k) plan accounts. Here are the best investment tips to help you build and grow your wealth, as echoed by experts:
Start with a Sound Financial Plan
You should start by formulating a new financial plan or updating the existing one if you are going to build wealth with no retirement savings at 55.
For instance, it will help if you review your monthly budget and assess the financial situation of your dependents to determine your immediate personal expenses.
However, building wealth and investing in your 50s isn’t about personal expenses and budget only. It will be prudent if you get in touch with a reputable financial planner in Portland, OR, to create a bigger-picture plan that covers your legacy.
Build Multiple Income Streams
Knowing how to catch up on retirement savings in your 50s by creating multiple income sources to build wealth is critical.
Besides asking for additional pay at work, you can leverage your skills to build a side hustle for additional income. You can also work part-time on side projects on your idle evenings and weekends.
Turn to Real Estate Rentals
Real estate can help you build wealth through rent or capital appreciation, especially if you start planning for retirement at 55.
You can start by renting out an extra room in your family home or a vacation house to consumer-facing services, such as Airbnb. Alternatively, you can buy older homes, renovate them, and flip them at a higher market price.
Manage Debt Wisely
Debt reduction should be a priority when you clock your 50s and plan to build wealth for retirement.
Start by paying off your primary residence mortgage so that you can find extra money to diversify your investment portfolio. However, you can ignore debts on assets that generate positive cash flow, such as real estate.
Open a Roth IRA Account
Besides saving through your employer’s 401(k) benefit plan, you can also open a self-funded IRA account for building wealth in your 50s.
You can consult IRA financial planning experts to help you get started with this approach and gain insights on how to make it successful.
7 Fastest Ways to Catch Up on Your Retirement Savings When You Are 55
The best way to save for retirement in your 50s is to embark on a journey of catching up with the years you lost. No matter how much you feel is lost, there is always something that you can do to make a difference today and tomorrow. That said, here is how to prepare for retirement in your 50s in 7 ways:
Start Saving Now
One of the best retirement tips any professional will give you is to start saving as early as now, age notwithstanding. Let’s look into a real-life example of planning for retirement at 55 to put this into a better perspective. With an average income of $97,000 a year, you can have up to $1 million for retirement in the next 20 years if you start investing 15% ($14,550) now.
Cut Your Budget for More Savings
Don’t look very far if you want that extra income to channel to your retirement savings account. Choose a specific amount you want to save and trim your personal expenses to ensure that money is always available at the end of the month. For instance, you can cancel unnecessary subscriptions or shop for relatively affordable insurance covers.
Are you suffering from a chronic condition that requires constant medical attention and often involves you getting into your pockets to supplement costs covered by insurance? If so, you would want to create a dedicated savings account for unforeseen health expenses. This will save you unplanned costs and give you peace of mind to focus on your plan for retirement in your 50s.
Push Back Retirement a Few Years
Everyone dreams of retiring early to spend the best part of their golden years with grandchildren. However, you might not need this luxury if you’re starting to save for retirement at 55.
Instead of retiring at 65, keep working and saving until 75, especially if your health is solid. This will give you an additional 5 years to earn on compounding interest.
Leverage Catch-Up Contributions
Failing to make retirement plans on time doesn’t mean that all is lost. You can get back on track by leveraging catch-up contributions in your tax-sheltered accounts, such as 401(k) plans.
The goal is to have your money working for you in a diversified investment portfolio, no matter how small it looks.
Don’t Make Withdrawals from Your Retirements Account
The longer your money stays in a retirement savings account, the higher the chances of it making a sizable yield.
After you’ve saved for years, you can look for professional wealth management consulting services to help you plan your legacy and estate.
Find an Investing Professional
The best way to catch up on retirement savings while in your 50s is by working with investing professionals from reputable organizations, such as Interactive Wealth Advisors.
A professional will help you kick old habits that got you into this position in the first place. You’ll also get guidance on the most viable savings options to help you achieve your legacy.
Tired of seeing a large chunk of your hard-earned money go to taxes each year? With Interactive Wealth, you can take control. We offer comprehensive tax reduction strategies designed to minimize your tax liability and maximize your financial gains. Learn more about our Tax Reduction Strategies today and start keeping more of your money where it belongs – with you.
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The Bottom Line
Starting saving for retirement at 55 is a wake-up call, but that shouldn’t alarm you, especially if you’re ready to turn on a new leaf and put your priorities in the driver’s seat.
This guide teaches you how to do so and secure your legacy. However, retirement planning isn’t a one shoe fits all approach—your situation might be different. Contact us today to discuss your options.
The answer is no, especially if you take the 401(k) savings plan approach. Under the new law, there are no age restrictions for 401k contributions, even among the 70+ years old folks. Moreover, 401(k) plan contributions for 2022 and 2023 are relatively higher than IRA, making the former a better option.
At age 50, you can start making extra contributions to your tax-sheltered retirement accounts (called catch-up contributions). Younger workers can only contribute $22,500 to their 401(k)s and $6,500 to their IRAs in 2023. But Americans aged 50 and up can contribute up to $30,000 in a 401(k) and up to $7,500 in an IRA.
Some good investments for retirement are defined contribution plans, such as 401(k)s and 403(b)s, traditional IRAs and Roth IRAs, cash-value life insurance plans, and guaranteed income annuities.
By age 50, you should have six times your salary in an account. By age 60, you should have eight times your salary working for you. By age 67, your total savings total goal is 10 times the amount of your current annual salary. So, for example, if you're earning $75,000 per year, you should have $750,000 saved.
The median income for a 55-year-old is about $57,500, which means having $460,000 saved for retirement. The average savings for those 55-65 is $197,322. Your "official" retirement age is usually defined by when you're eligible to receive full Social Security benefits.
No matter your age, there is never a wrong time to start investing. Let's take a look at three hypothetical examples below. For these examples, everyone invests $57.69/week with a 7% growth rate and has an annual salary of $30,000.
Leverage All of Your Savings Options. While a 401(k) (or another employer-sponsored plan) is a good first stop for retirement savings, it's not the only way to build your nest egg. ...
Bottom Line. You can probably retire at 55 if you have $4 million in savings. This amount, according to conventional estimates, can reliably produce enough income to pay for a comfortable retirement.
Can I retire at 55 with $500k? Yes, retiring at 55 with $500,000 is feasible. An annuity can offer a lifetime guaranteed income of $24,688 per year or an initial $21,000 that increases over time to offset inflation. At 62, Social Security Benefits augment this income.
If you manage to stay healthy and never need long-term care then $600,000 could be enough to sustain you in retirement. On the other hand, if you need long-term care in a nursing facility that could take a large bite out of your savings.
With $5 million you can plan on retiring early almost anywhere. While you should be more careful with your money in extremely high-cost areas, this size nest egg can generate more than $100,000 per year of income. That should be more than enough to live comfortably on starting at age 55.
So it's perfectly legal to retire in your mid-50s if that's your goal. But it's important to keep in mind that retiring at 55 isn't the norm for most people. If you're going by the normal retirement age prescribed by Social Security, for example, that usually means waiting until you're 66 or 67.
One rule of thumb is that you'll need 70% of your pre-retirement yearly salary to live comfortably. That might be enough if you've paid off your mortgage and are in excellent health when you kiss the office good-bye.
If you retire at age 55, you probably won't be eligible to receive Social Security retirement benefits for several years or be able to withdraw money from your retirement accounts without paying a 10% early withdrawal penalty. Additionally, for most people, Medicare won't kick in for another 10 years. 62.
In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.
It's never too late to start investing, but that doesn't mean you'll have the same investment strategy as your 22 year-old niece. Younger folks have more time to ride out the highs and lows of the stock market over time. People who are near retirement, or who are already retired, may want to take a different tack.
No matter how old or young you are, it is never too late to start investing in the stock market. Investing now will allow you to take advantage of compounding returns sooner rather than later. This can make all the difference when it comes down to long-term financial goals such as retirement.
As you reach your 50s, consider allocating 60% of your portfolio to stocks and 40% to bonds. Adjust those numbers according to your risk tolerance. If risk makes you nervous, decrease the stock percentage and increase the bond percentage.
This includes rising healthcare costs, housing, taxes, travel, and other unexpected expenses. A financial advisor can ensure that you do not underestimate the actual cost of these factors and put your retirement savings at risk.
When our team completed The National Study of Millionaires, we found that 93% of millionaires said they stick to the budgets they create. Ninety-three percent! Getting on a budget is the foundation of any wealth-building plan.
The first step is to earn enough money to cover your basic needs, with some left over for saving. The second step is to manage your spending so that you can maximize your savings. The third step is to invest your money in a variety of different assets so that it's properly diversified for the long haul.
You're never too old to fund a Roth IRA. Opening a later-in-life Roth IRA means you don't have to worry about the early withdrawal penalty on earnings if you're 59½. No matter when you open a Roth IRA, you have to wait five years to withdraw the earnings tax-free.
Peak years are generally thought to be late 40s to late 50s*. The Latest figures show women's peak between ages 35 and 54, men between 45 and 64. After that, most people's incomes typically level off.
It probably is possible for most people to retire at age 55 if they have $2.5 million in savings. The ultimate answer, though, will depend on the interplay between various factors. These include your health, your anticipated retirement lifestyle and expenses, and how you invest your nest egg.
Can I retire at 55 with $1 million? Yes, you can retire at 55 with one million dollars. You will receive a guaranteed annual income of $56,250 immediately and for the rest of your life.
According to the Social Security Administration (SSA), the average monthly retirement benefit for Security Security recipients is $1,781.63 as of February. Several factors can drag that average up or down, but you have the most control over the biggest variable of all — the age that you decide to cash in.
According to data from the BLS, average incomes in 2021 after taxes were as follows for older households: 65-74 years: $59,872 per year or $4,989 per month. 75 and older: $43,217 per year or $3,601 per month.
Yes, you can retire at 50 with 2 million dollars. At age 50, an annuity will provide a guaranteed income of $125,000 annually, starting immediately for the rest of the insured's lifetime. The income will stay the same and never decrease. annually initially, with the income amount increasing to keep up with inflation.
The Social Security disability five-year rule allows people to skip a required waiting period for receiving disability benefits if they had previously received disability benefits, stopped collecting those benefits and then became unable to work again within five years.
It's definitely possible, but there are several factors to consider—including cost of living, the taxes you'll owe on your withdrawals, and how you want to live in retirement—when thinking about how much money you'll need to retire in the future.
The good news: As long as you plan carefully, $3 million should be a comfortable amount to retire on at 55. If you're ready to be matched with local advisors that can help you achieve your financial goals, get started now.
Financial advisor Suze Orman says that "one of your smartest financial moves this year will be to run a serious maintenance checkup on your retirement saving strategy," and she's right. While 75% of Americans have some retirement savings, many are pessimistic about their chances of retiring on time.
It's called the 25 times rule, and it's very simple. You multiply your annual spending by 25, and that is the minimum amount of money you would need invested to fund your lifestyle without working.
Experts say to have at least seven times your salary saved at age 55. That means if you make $55,000 a year, you should have at least $385,000 saved for retirement. Keep in mind that life is unpredictable–economic factors, medical care, and how long you live will also impact your retirement expenses.
Some good investments for retirement are defined contribution plans, such as 401(k)s and 403(b)s, traditional IRAs and Roth IRAs, cash-value life insurance plans, and guaranteed income annuities.
That works out to $3,538 in monthly Social Security benefits, after adding on delayed-retirement credits worth an extra 32%. You can see that Social Security doesn't replace a huge portion of earnings, but it's still a significant contribution.
Many Retired People Don't Expect to Pay Off Mortgages
Traditionally, homeowners looked forward to paying off their mortgage before retirement and living out their golden years without the heavy burden of a monthly house payment. But that scenario is becoming less common, according to a recent survey.
Across those 50 metros, an average of about 19% of homeowners who are 65 and older still have a mortgage. We also found that homes owned by people in this age group tend to be less valuable than those owned by the general population — and that their monthly housing costs tend to be lower.
Key Takeaways. Paying off a mortgage can be smart for retirees or those just about to retire if they're in a lower-income bracket, have a high-interest mortgage, or don't benefit from the mortgage interest tax deduction. It's generally not a good idea to withdraw from a retirement account to pay off a mortgage.
That means that many will need to rely on Social Security payments—which, in 2021, averages $1,544 a month. That's not a lot, but don't worry. There are plenty of places in the United States—and abroad—where you can live comfortably on $1,500 a month or less.
If your highest 35 years of indexed earnings averaged out to $100,000, your AIME would be roughly $8,333. If you add all three of these numbers together, you would arrive at a PIA of $2,893.11, which equates to about $34,717.32 of Social Security benefits per year at full retirement age.
Under the new law, there are no age restrictions for 401k contributions, even among the 70+ years old folks. Moreover, 401(k) plan contributions for 2022 and 2023 are relatively higher than IRA, making the former a better option.
However, regardless of your age and expectations, most financial advisors agree that 10% to 20% of your salary is a good amount to contribute toward your retirement fund.
Given you are investing for ten years, you may consider investing in equities. But with your 50, you should moderate your equity risk by investing in balanced or debt funds to some extent. Large-cap funds invest in companies that are well established and have high market capitalization.
The simple answer is it's never too late to start saving for your retirement, but you should think about starting to save as soon as you can. The biggest advantage working for you if you start early is compound interest, which essentially means your money can make you money.
You can probably retire in financial comfort at age 45 if you have $3 million in savings. Although it's much younger than most people retire, that much money can likely generate adequate income for as long as you live.
Can I retire at 50 with $300k? The problem with having a $300,000 nest egg, as opposed to $500,000 or $1 million, is that retiring early isn't as viable an option. At age 50, you'll have to stretch that $300,000 out further, so it will be important to find an investment with a high return.
Yes, you can retire at 62 with four hundred thousand dollars. At age 62, an annuity will provide a guaranteed level income of $25,400 annually starting immediately for the rest of the insured's lifetime. The income will stay the same and never decrease.
While so-called "401(k) millionaires" make up only 1.4% of the 21.5 million people with Fidelity accounts, the average value of a Fidelity plan dropped by 20.5% as the S&P 500 (^IN) tumbled 19.4% in 2022 amid a year of everything from war, energy uncertainty and widespread inflation.
Leverage All of Your Savings Options. While a 401(k) (or another employer-sponsored plan) is a good first stop for retirement savings, it's not the only way to build your nest egg. ...
The question is often asked, “How much money do I need in 401k to retire at 50?” While it can vary depending on your lifestyle and expenses, financial advisors often recommend having at least 10-12 times your final salary saved.
By age 50, you would be considered on track if you have three to six times your preretirement gross income saved. And by age 60, you should have 5.5 to 11 times your salary saved in order to be considered on track for retirement.
Important reminder: The 50/30/20 budget rule only considers your take-home pay for the month, so anything automatically deducted from your paycheck — like your work health insurance premium or 401k retirement contribution — doesn't count in the equation.
Zigmont said that it is possible to retire with $500,000 in savings — but this will likely not be enough for most people. “It is possible to retire on $500,000 if your expenses are less than about $20,000 per year,” he said. “For most people, this means having no debt and being in a low cost of living area.
To get approximately $2,000 per month from your 401k when you retire, you'll need to have saved around $800,000. To reach this goal, you must start saving as early as possible, contribute as much as possible to your 401k each year, and consistently invest in a diversified portfolio of stocks and bonds.
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