fbpx

When You Got a Late Start to Retirement Planning

analog clock that says time to retireIf you’ve come to this page, you’re likely nervous about your future. You got a late start to planning for your Golden Years and now you may be wondering if retiring is even an option. Here’s the good news: 

It’s never too late to start planning for the future. 

Even if you feel behind, there are ways to help you catch-up! We get it, life – in the form of mortgages, child-rearing, higher education expenses and just daily living – may have taken priority over planning for retirement. But the harsh reality is you can’t afford to put it off any longer. The key to catching up is getting started now! The sooner you start, the quicker you can catch up – and you can catch-up! You may not reach retirement on the exact day or with the same future plans as you’d originally envisioned, but you can still have a long and rewarding retirement. 

If you’re further behind in your retirement planning than you had hoped, you’ve come to the right place! The Global View team created this guide to highlight a few of the ways to help make up for lost time. To discuss your specific situation in more detail, start a conversation today! Schedule a no-obligation conversation with the Global View team to see how we can help.

Chapter 1

Maximizing Your Contributions

First, start maximizing your retirement contributions. If you have a 401(k) or similar defined contribution plan, contribute as much as possible. If your company offers a match, make sure you’re taking full advantage of it. If your company will match 100 percent of your contributions up to 3 percent of your salary, this is free money you can’t afford to pass up.

If you don’t have access to a 401(k), make sure you’re contributing as much as possible to an Individual Retirement Account (IRA). In a Traditional IRA, the contribution is tax-deductible. In a Roth IRA, it is not tax-deductible, but as long as you hold it for at least five years, it will not be taxed upon withdrawal, while withdrawals from Traditional IRAs will be. 

Money in both Traditional and Roth IRAs appreciates tax-free until withdrawal.

Read our recent blog post: 

How to Become a Successful Retirement Story

 

Chapter 2

Catch-Up Contributions

Here’s more good news if you’re age 50 or older: You have the chance to make catch-up contributions to both 401(k)s and IRAs.

Here’s how catch-up contributions work: 

If you’re under age 50, the maximum amount you can contribute to a 40(k) plan is $19,500. Once you turn 50, the IRS increases this limit by $6,500, for a total of $26,000 every year. The limit for an IRA is $6,000 if you’re under age 50, but $7,000 per year if you’re 50 or older.

Read our recent blog post: 

Unexpected Early Retirement Due to COVID-19? 7 Ways to ‘Catch-Up’

 

Chapter 3

Conversions

If you have retirement funds in Traditional IRAs or 401(k)s, it may make sense for you to convert them to a Roth account. Why? In a nutshell, money in a Roth account is not taxed upon withdrawal, as long as you’ve held the money in the account for at least five years. Money withdrawn from Traditional accounts, on the other hand, is. 

Another advantage to Roth accounts is that they aren’t subject to Required Minimum Distributions (RMDs). When you reach the age of 72, you must take RMDs from Traditional IRAs and 401(k)s every year. If you don’t, you face a heavy tax penalty on the amount you should have taken. But these requirements don’t exist for Roth accounts. 

Make note: Funds converted from a Traditional account will be taxed in the year of conversion at your existing rate. If your tax rate is currently higher than you expect it to be at retirement, it might not make sense to convert funds. But if it’s lower, or you want the flexibility of Roth accounts, talk to a financial advisor to see if it makes sense for you. 

Read our recent blog post:

When You Don’t Qualify for a Roth IRA … 

Chapter 4

Social Security Options

If you’re eligible for Social Security benefits, don’t make a rash decision about when to start taking them. The choice can affect how much you’ll receive every month for the rest of your life.

Although everyone eligible can begin drawing benefits at the age of 62, the benefit amount is reduced for every year you take them before your full retirement age, an age determined by your birth year. 

Conversely, if you wait until after your full retirement age, the amount you receive every month increases, by roughly 8 percent annually, up to age 70. No increases occur after the age of 70.

In other words, if your full retirement age is 67 and your full benefit amount is $2,700, taking your benefits early at age 62 will lower the amount to $1,800. If you wait to start taking your benefits until age 70, on the other hand, the monthly benefit will increase to $3,348. That’s a swing of $1,548 every month, and this can really make a difference when you got a late start to retirement planning. Spend some time thinking about when you want to withdraw your benefits. Both increases and decreases in benefits are permanent. (Any further increase is a cost-of-living increase, not an increase in your benefit amount.)

For more on how Social Security benefits work, check out our new guide: Navigating Social Security.

 

Chapter 5

Risk Tolerance

It’s a common belief that your portfolio should become more conservative as you near retirement. While this is true in many cases, since you will soon be living off your investments and have less time to make up for any loss you experience, this isn’t always the right move. In fact, if you get a late start to your retirement planning, you may want to increase the amount of risk in your portfolio in the hopes of getting bigger returns. Taking a conservative approach can actually present more risk, as you may not be able to keep up with inflation. 

You should never feel uncomfortable about your investments, though, or the amount of risk in your portfolio. Discuss your risk tolerance, your retirement goals and your specific situation with a fiduciary financial advisor your trust to see what makes sense for you. 

Read our recent blog posts: 

Is It Time to Re-Evaluate Your Risk?

3 Key Reasons Investors Fall for Different Types of Investment Risk

When a Conservative Approach to Investing Doesn’t Work: 5 Retirement Stories

Chapter 6

Concentrated Stock Options

As people age, their portfolios can become dominated by one (or a few) stocks. This phenomenon, known generally as “concentrated stock” can occur because you were granted stocks (or stock options) at part of your employment, inherited them or purchased them, and they appreciated over time. One stock, especially if it performs extremely well, can appreciate to the point where it constitutes most of a portfolio. 

However concentrated stock happens, your portfolio should be reviewed and assessed if it is dominated by a single or limited number of positions. Paradoxically, stocks that were a buttress of net worth and performed superbly become potential risk factors! 

The reason is simple: Concentrated stock means you aren’t diversified. Diversification is a key component of managing market risk. One (or a few) stocks comprising your retirement portfolio means you are very exposed to that stock’s dropping in price, the company experiencing challenges, or either the stock or the company falling out of market favor.

It’s important to diversify your portfolio and manage its asset allocation appropriately so that you are not overly exposed to risk, especially as you approach retirement. In addition, your portfolios should be reviewed and rebalanced every year so that stock concentration doesn’t happen once you’ve retired.

Read our recent blog posts: 

Financial Horror Stories: The Greatest Threat to a Successful Retirement

Your Eggs and Your Baskets: Why Diversification is Important  

Does Your Portfolio Need Rebalancing? 10 Times to Check

 

Chapter 7

Revisiting Retirement

A decade or so before retirement, it’s a good idea to sit down and revisit any plans or thoughts you have about your Golden Years. 

First, have your goals changed? Do you want to relocate? Downsize from your current home? Do you want to run a business? Travel? Learn new things? 

Second, do you have a plan for your day-to-day life in retirement? How will it change from your day-to-day life now? The primary reason to do this is to move your goals from abstract to workable. But a highly related reason is to assess your budget needs in retirement.

It’s another common belief that overall expenses go down in retirement. That’s not necessarily true. Some costs, like commuting to work, may fall to the wayside, but others, like travel or healthcare, may go up. 

Look at your current budget. What categories will change? What expenses will change? Then, look at your projected income in retirement. Be sure to include income from retirement funds, pensions, investments, Social Security benefits and any other applicable source. Do your anticipated expenses and income match? If you need more income for projected expenses, what are your options? These might include working later, delaying Social Security or saving more now.

Read our recent blog post: 

Addressing Your Day-To-Day Plans for Retirement Post-Coronavirus

Retiring in Greenville, SC? 6 Ways to Fight Back Against Taxes

Chapter 8

Professional Help from a Financial Advisor

If you’re currently without a retirement plan or further behind in your planning that you had hoped, there’s no better time than now to get a second opinion. At Global View, our team of fiduciary financial advisors can help you customize a plan to meet your goals, maximum your income, manage your portfolios, minimize taxation and make up for lost time.

The right financial advisor can help make sure your transition into retirement is smooth, no matter the circumstances. Talk to the Global View team today.

Read our recent blog post: 

How to Plan Like a Millionaire: Tips from the Best Financial Advisors Greenville, SC