Catch-Up Retirement Savings Options for Late Starters

June 6th, 2010  |  Published in Retirement  |  1 Comment

If you have not saved enough money for retirement you have plenty of company.  I wrote a little while back noting that most Americans are unprepared for retirement.  Many people don’t get serious about starting their retirement savings until their in their late 40s or even their 50s.  Of course, it is better to start saving earlier but for those of you who have gotten a late start still have a chance to save enough for retirement.

In order to save enough for retirement you will have to save a large percentage of your income.  If you are aged 50 or older you can contribute an extra $1000 to your Traditional or Roth IRA.  If you are self-employed you can contribute even more to your retirement accounts.  If you have a Simple IRA you can contribute an extra $2500 under the catch-up provisions.  If you have a 401k you can contribute an extra $5500.  You can also make catch-up contributions to your Health Savings Account although that will be changing.  Visit irs.gov to verify the amount of catch-up contributions you can make.

In addition to boosting your savings rate up to 20% or more you need to cut your expenses as well.  This will allow you to live on a smaller nest egg.  Making these changes won’t be easy but it is better than running out of money in retirement.

  

Responses

  1. Gary says:

    October 29th, 2010 at 7:59 pm (#)

    Hi,
    Am also late to the retirement savings program. Have a dilemma on whether to invest in a whole life insurance policy vs. an IRA.
    Appreciate your opinion.
    Briefly:
    – Live in San Diego.
    – 54 years old, with non-working wife and 2 kids (14, 11).
    – Have $425k mortage on a house valued at approx. $1mm
    – Have $50k in IRA, $30k in Stocks, $150k in fixed annuity type investments
    – Have $950k in Term Life Insurance (locked rate for next 20 years)
    – Have about another $25k to invest — and am being advised to purchase a $250k whole life insurance policy – that will also serve as an investment tool – by investing another $10k next year and $500 per month thereafter for the next 10 years. From there, I would take withdrawels for retirement.
    – Would I be better off using the $25k to invest in my current company’s 401k or a Roth IRA? And going forward, I may only have $500 total per month to put away for retirement (for the next few years) – and so would I be better off fundig the 401k and/or Roth IRA vs. the Whole Life Insurance Policy?

    Thanks!!