July 12, 2017
Emergency: Starting Your Retirement Savings at Age 50
Here in California, we have emergency plans for everything — earthquakes, forest fires, regular fires and even the forthcoming full solar eclipse in August (yes, you might need those special really cool glasses). But for those profitable business owners nearing their 50’s who have been saving for retirement using their company’s 401(k) Profit Sharing Plan, Benefit Equity President and Senior Pension Consultant, Michael Gorelick has some good advice.
He says, “most people will not be able to replace their working income in retirement without doing something compelling today.” Gorelick recommends combining the power of a Pension Plan (Defined Benefit Plan) with their current Defined Contribution Plan. He says “the results are dramatic and compelling. Going from an annual tax deferred maximum of $59,000 in 2016 to as much as $200,000 can get them much closer to a comfortable retirement.”
The majority of Americans retire between ages 61 and 65, according to LIMRA Secure Retirement Institute. Even at age 50, Americans have a 15-year window to get all their financial ducks in a row and still retire by age 65. While that window may not be large enough for everyone to get where they need to be by 65, taking full advantage of the opportunity can make the difference between retiring at 68 or retiring at 80.
Even those getting a tardy start in thinking about retirement can take advantage of tax breaks and other moves to make up significant ground. This may require substantial changes in one’s lifestyle now, but they’re almost certain to be less painful than what might be required in 10 or 20 years. The most important first step to take is to start saving. Now. Even if you haven’t yet worked out any kind of a plan; that can come later. But you’re still going to need the money.
We’re not talking about the kind of tiny savings that comes from giving up your twice-a-week Starbucks Venti Latte. Instead, you need to start saving a good 10 percent of gross income or even more. There are essentially two ways to save. One is to pay down high-interest-rate debt that isn’t already tax-deductible–especially credit cards. If you’re paying 20 percent on credit card debt, in effect you get an immediate 20 percent return for every dollar you pay off.
Even more significant is Social Security, which replaces 42 percent of the salary of a median wage earner who retires at the “full” or “normal” retirement age–66 for those who were born between 1943 and 1954. You can start drawing early retirement benefits from Social Security at age 62, but it pays to wait, especially if you continue working past that age, and is crucial if you’ve begun saving late. Delaying the start of Social Security benefits until age 70 can boost the monthly payout by as much as 80 percent. For more on how to get the biggest Social Security payout, visit https://www.ssa.gov/myaccount/message.html
As you can see there is much to consider when planning for retirement. Gorelick says, “working with your Financial Advisor/Planner is the best place to start. However getting the opinion of your CPA and even an Estate Planning attorney is often recommended.” At Benefit Equity, we can assist your Trusted Advisors in creating the right plan that ensures business owners and their employees have a safe, worry-free path to retirement.
Wayne Duggan – Contributor at U.S. News: https://money.usnews.com/investing/articles/2017-07-06/an-emergency-plan-for-starting-your-retirement-savings-at-age-50
William Barrett – Forbes: https://www.forbes.com/2010/03/16/retirement-planning-401k-ira-personal-finance-late-start.html