Celebrating your 50th birthday can bring on thoughts of your home and vehicles, taking care of your parents and managing college tuition for your children. You may wonder how you will be able to save for your retirement.
By the time you reach 50, you should have about six times your annual salary put aside for retirement. If you earn $70,000 per year, this amount would be $420,000, which is a lofty goal for most people.
A more realistic approach to investing in middle age is using a retirement calculator. You can use this tool to check various investing and saving scenarios. This will provide you with results that may have been unclear when you were younger.
If you find your goals are still out of reach, the following tips will help.
Play Catch Up:
There is no need to panic if you have not reached your retirement savings milestones. Since you are in the years where you will earn the most, you can close the gap by contributing to retirement accounts that will provide tax breaks.
Those who are age 50 and beyond can direct an extra $6,000 annually to their company’s retirement plan. This is in addition to the $18,500 yearly limit on contributions. You can also put $1,000 toward an IRA.
Padding your portfolio in this manner can provide you with an extra $25,000 for retirement. If you have a 401k account through your employer, you can maximize it and get another $150,000.
When investing in stocks and bonds, diversity is the key. In the case of equities, you should include real estate, emerging markets and companies of various sizes. Bonds should be both international and U.S. in the short, mid and long-term categories.
If you need help with investing, you can consult with a fund screener at any major brokerage to help you explore options regarding the type of funds, the cost, the performance and other important considerations.
Get a Roth IRA:
Diversification also applies to your investment taxes. Younger investors often prefer a Roth IRA because it offers withdrawals that are tax free as opposed to a traditional IRA that has taxed withdrawals and tax-deductible contributions. This makes sense because younger workers are in a lower tax bracket, but a Roth still has value for middle-aged investors by providing flexibility and being easy on taxes when you want to pass that wealth on to the next generation.
If you do not qualify for a Roth IRA, you may be able to take advantage of a Roth 401k through your employer instead. This type of account is not restricted by income requirements. If you want to preserve your tax breaks, consider having both traditional accounts and a Roth to maximize the benefit.
Many people in their 50’s are behind on retirement savings. By using the tips above, you can catch up quickly and have a secure future.
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