The age between 45 to 50 years is probably one of the most demanding to plan for on a general scale, as it incorporates individuals who are just starting a family, individuals who are starting a career and pre-retirees. Most people in this age bracket would probably be close to their retirement saving goals.
However, there are millions of Americans who are on the other side of 40 and have yet not saved enough for retirement. There are many ways in which one can still catch up with missed time and increase the pace of contributions towards a comfortable retirement such as starting one’s own business, adopting a retirement plan and making catch-up contributions.
The principal thing to be considered is to calculate approximately the money one requires to live on in retirement. This can be done by using one of the good online retirement calculators to get an estimate. After grasping a rough idea of one’s financial needs after retirement, next arises the need to calculate the money that would be available from sources other than the savings, which includes the expected Social Security benefit at retirement age, pension from a previous or current employer and the expected value at the planned retirement age in terms of a 401k plan. While making these calculations, it is essential to use a conservative rate of growth to avoid overestimating. Now, one has to set goals for reaching the amount required to make up the difference between Social Security, pensions and any other retirement funds.
For people who have yet not signed up for a 401(k) or 403(b) or any other voluntary contribution retirement plan, it is not too late. It is important to sign up at the earliest and contribute the maximum allowed by law. If one is in a combined federal and state income tax bracket of 35 percent, the contributions will only cost 65 cents for every dollar one puts into the account. The maximum contribution for 2006 is 15,000 dollars for those under 50 years. A 45 year old has 21 years until retirement. Therefore, his or her 15,000 dollars a year contribution will grow to nearly three quarters of a million dollars (pre-tax) in 21 years at a seven percent rate of return. Moreover, if the employer matches a percentage of the individual’s contribution, the person will end up with an additional sum. Those who make under the income thresholds can contribute to a Roth IRA in addition to the 401(k) or 403(b) plan. The contribution is not tax deductible, but the earnings will be tax-free in retirement. The maximum contribution for a Roth IRA in 2006 if one is under 50 years is 4,000 dollars, which each year will grow to nearly 208,000 dollars in 21 years at a 7 percent rate of return.
It is important to get out of the conservative mould. Even at 45 or 50 years of age, one still has several decades for the retirement earnings to grow. Therefore, one must invest a large percentage in carefully researched, proven stocks, or mutual funds. It might be beneficial to consider relocating or downsizing in order to cut down the cost of living. If the individual is free from the responsibility of children, one can think of selling a bigger house at an appreciated value and moving into a smaller, less expensive home. One could also explore the option of taking on a second job and investing the earnings. Most importantly, one should get out of debt. Paying only the minimum payment on credit cards is one of the worst financial mistakes one can make. To begin saving for retirement at a later stage in life can get hard on oneself. However, with some rational guidelines one can surely reach the aspired goal. The only requisite is to shed all doubts and start right away.
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