There are ways to improve your retirement outlook, no matter what your age or financial situation. The five options below can offer you effective ways to secure your financial future.
1. Save more
If you have an employer-sponsored 401(k) or 403(b) retirement plan, talk to your benefits department about increasing your contributions. These tax-advantaged plans can reduce what you owe Uncle Sam next April. And if you phase in the increased contributions over a few years, you’ll barely notice the slightly smaller paycheck. "It’s critical to maximize what you can contribute," says Angela Ritzert, a SunTrust financial advisor in Georgia.
If you are already maxing out your employer’s retirement plan, consider opening a traditional or Roth IRA to set aside additional money. Depending on your financial situation, you might also make systematic contributions to a cash brokerage account, says Ritzert. Discuss these options with your financial advisor.
2. Play catch-up
For 2013, the IRS lets workers age 50 and older make annual catch-up contributions of $5,500 to their 401(k) accounts, and to save an additional $1,000 per year in a traditional or Roth IRA.1 Employer-sponsored 403(b) plans also have catch-up provisions. Talk with a financial advisor about maximizing your plan contributions. If you’re nearing the time when a mortgage or college loan payments are going to go away, consider redirecting those payments to your retirement savings.
3. Work longer
Staying on the job for a few extra years, whether full- or part-time, might allow you to ease comfortably into full retirement. What’s more, you'll need to fund fewer years of retirement. Some near-retirees enjoy an added bonus by switching to a new career that they find fulfilling and financially beneficial. Another plus of working longer: you’ll boost your Social Security benefit by 8 percent for every year you delay taking it.
4. Get real.
At age 65, the average American can expect to live another 18 to 20 years2. To ensure that your nest egg lasts through those two decades, you’ll need a realistic spending plan in place on Day One. Many experts recommend withdrawing no more than 4 percent a year from your retirement investments; some suggest even less. Add to that amount any other stable sources of income, such as Social Security, to arrive at your spending limit. By maintaining a lifestyle in balance with your income, you won’t lose sleep over running out of money. "Your financial advisor can help you assess the lifestyle you’d like to have, and determine what's realistic based on your assets, age and life expectancy," Ritzert says.
5. Maintain an emergency fund
Finally, while socking away pre-tax money in a 401(k), 403(b) or traditional IRA can help grow your nest egg, you can’t access that money without paying stiff penalties. That's why Ritzert urges clients to make sure they also have access to an emergency fund equal to at least three months’ expenses. Hold these funds in a savings or money market account so you can be certain the money is there if you need it.