Quick Read
- A Redditor has this issue, and if you’re facing the same problem, it’s time to take action.
- You’re behind on retirement, but you’re not as far back as you think.
- There are also policies in place to help you catch up.
- If you’re focused on picking the right stocks and ETFs you may be missing the bigger picture: retirement income. That is exactly what The Definitive Guide to Retirement Income was created to solve, and it’s free today. Read more here
The average person at 55 has a portfolio nearing $1 million, with the median being much lower, near $300,000. That’s if you have most of your household net worth invested in stocks. But if you are in a situation like the one in this article’s title, the problem is particularly acute.
Unfortunately, millions of Americans are precisely in this situation, as they haven’t been able to follow retirement planning to the T.
A Redditor asked on the r/FinancialPlanning subreddit earlier this year, saying they had only $80,000 in the bank and $40,000 in their 401(k). The individual is now seeking a financial planner, which is a smart idea and almost a must at this stage.
However, if you’re not looking for a personalized blueprint and you want an approximation, you may benefit from reading on. With $120,000 in liquid assets, retirement is still not impossible. You’ll have to make sacrifices, but you can get there, albeit with a delay.
Let’s look at the steps you can take and when you may be able to finally retire.
Take stock of your financial picture
You can set some time aside to find out what you’re working with
A clear-eyed assessment is the foundation for any plan. It’s a good idea to look beyond just savings accounts and 401(k) balances and also consider social security estimates, any pension benefits, home equity, and other assets you may have. You can also add any expected inheritances. Lots of people underestimate their total net worth.
If all of that still does not make a significant change to that $120k, you’re in a tricky situation, but you’re not too much of an anomaly. It’s time to take action. Many are doing just that, often starting off in a worse position.
You may want to look into whether or not you have any pension benefits from current or former employers, even small ones you may have forgotten. Then, you can estimate what life will actually cost while you are retired. Some expenses can decrease and make it substantially cheaper for you to retire, like commuting or housing, if your mortgage is paid off.
All of this should give you a more holistic idea about where you are and help you identify the gap, and hopefully bridge it before things get worse.
The levers you can pull
It’s time to bring things fully under control
The most effective thing you can do is extend your working years. The benefits are two-pronged: first, each year you wait past your full retirement age of 67, you get an 8% Social Security bump. This means that waiting until 70 will give you 24% more in monthly income. And second, you get paid more from whatever job you are doing, giving you a bit more time to invest and get across the finish line.
Retiring at 70 obviously can look odd due to the psychologically large number, but that’s just 3 years away from the new full retirement age of 67. In the grand scheme of things, that’s not a lot. You’re getting a 24% permanent monthly Social Security boost for working those 3 years, and not taking that deal sounds like a fool’s errand unless you either have a lot of money or you’re unable to keep working.
On top of working for longer, you should immediately start supercharging your savings in the final stretch. There are catch-up contribution rules for individuals over 50. Workers can contribute an extra $7,500 to their 401(k) beyond the standard limit, and an extra $1,000 to an IRA. Every dollar you save and redirect here will make a huge difference by the time you retire.
There’s also a super catch-up provision starting this year for individuals aged 60 to 63. These individuals can contribute up to $11,250 instead of the standard $7,500 catch-up amount.
How to seek professional help
A financial advisor is worth the money
You don’t necessarily need expensive ongoing wealth management. But it can still be a very good idea to look at a one-time consultation with a fee-only fiduciary financial planner. This will cost a few hundred to a few thousand dollars, but the long-term returns will likely pay for it many times over.
You can look into the National Association of Personal Financial Advisors (NAPFA) or the Garrett Planning Network. It’s a good idea to avoid advisors who earn commissions on product sales, though. You can also look at free resources like the Social Security Administration’s online tools or YouTube.
In closing, the Redditor is not as behind as they think. If you are in the same boat, you can power through and catch up with other retirees.
Released: The Ultimate Guide To Retirement Income (sponsor)
Most investors spend years learning how to pick good stocks and funds. Far fewer have a clear plan for turning those investments into a reliable retirement paycheck. The truth is, the transition from “building wealth” to “living on wealth” is one of the most overlooked risks facing successful investors in their 50s, 60s and 70s.
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