When you're first starting out in your career, raising a family and pursuing other financial goals, retirement can feel like a far-off dream. But once you reach your 50s, retirement is right around the corner—and it's time to get serious!
As you near retirement, you might be wondering if you've saved enough for your desired lifestyle. The good news is, there are several ways to “play catch-up" if you're worried about coming up short.
Make the most of your employer-sponsored plan
Participating in a retirement plan through your workplace such as a 401(k), 403(b) or 457(b) plan is a good place to start. A traditional employer-sponsored plan allows you to defer income taxes on the money you save. This means you won't pay taxes on that money until you withdraw it in retirement. Plus, many employers offer to match up to a certain percentage of your contributions, helping you save even more for your retirement years.
How to catch upIf you're under age 50, the most you can contribute to an employer-sponsored plan is $19,500 for 2021. But, if you're age 50 or older, you're eligible to save an additional $6,500 per year in catch-up contributions. This gives you an opportunity to save more money and reduce your taxable income as you reach retirement age.
How to catch up
If you're under age 50, the most you can contribute to an employer-sponsored plan is $19,500 for 2021. But, if you're age 50 or older, you're eligible to save an additional $6,500 per year in catch-up contributions. This gives you an opportunity to save more money and reduce your taxable income as you reach retirement age.
Take advantage of IRA benefits
An Individual Retirement Account (IRA) is another type of investment account that allows you to save for retirement in a tax-advantaged way. With traditional IRAs, contributions are often tax-deductible, whereas withdrawals in retirement are taxable as regular income. Roth IRAs work in an opposite way: the contributions are not tax-deductible, but withdrawals are tax-free in retirement.
You can have both a 401(k) (or similar plan) and an IRA at the same time. Like an employer-sponsored plan, IRAs give you the chance to make catch-up contributions as you get closer to retirement.
How to catch upFor 2021, the limit on annual contributions to a traditional or Roth IRA is $6,000 a year. But if you're over age 50, you can add an additional $1,000 to your IRA. Even if you're on track with your retirement savings, adding to a tax-advantaged account can help you reach your retirement goal that much faster!
For 2021, the limit on annual contributions to a traditional or Roth IRA is $6,000 a year. But if you're over age 50, you can add an additional $1,000 to your IRA. Even if you're on track with your retirement savings, adding to a tax-advantaged account can help you reach your retirement goal that much faster!
Regardless of which type of retirement plan you have, you don't have to wait until your 50th birthday to begin making catch-up contributions. You can start during the calendar year that you turn 50.
Live the life you want to live throughout retirement!
Catch-up contributions allow you to make up for any years when you didn't save quite enough for retirement. For example, when you first started your career, you might not have been able to save as much for retirement as you can now. Or, you may have needed to pause saving for retirement due to major life events or times of unemployment. As soon as you're able to start saving again, it's important to make up for lost time.
If you're over 50 and have some extra income, it could make sense to make catch-up contributions and maximize your retirement accounts. No matter where you are on your retirement journey, talking to an experienced financial advisor can help you plan for a more financially flexible and free future.
At Wright-Patt Credit Union (WPCU), we want to help make retirement planning a little easier for you! The knowledgeable CFS* financial advisors and registered representatives on WPCU's Retirement Solutions Team, available through CUSO Financial Services, L.P. (“CFS"), can meet with you to provide personalized advice and guidance to help you successfully transition into retirement.
Schedule a complimentary, no-obligation appointment today with one of our CFS* Advisors to review your current retirement plan and learn more about our retirement planning options.