Many younger workers postpone retirement savings so that they can focus on goals such as paying off their student debt or buying a home. But if you are in your 50s and have no money at all in a special retirement plan, consider this a wake-up call to help you get better. Here are three critical steps you should take if this is the situation you are in.
1. Reduce Big Living Costs
If you are without retirement savings, it is probably because you are in the habit of spending your entire salary. Therefore, tackling a serious budget and making lifestyle adjustments could be your ticket to carving out some money for your nest and saving your retirement.
Once you've set your budget, cut it down to see where your money is going, and commit to making a few major changes that release money. This could mean getting to a smaller home, traveling without a car if you live low-cost public transport, or eating at home rather than having dinner three or four times a week. Smaller changes, such as lowering your cable plan, will also help, but if you're not without retirement savings at all, you'll need to think big to make a change.
2. Start contributing to your IRA or 401 (k)
The good thing about being in your 50s is that you are allowed to contribute more to a 401 (k) or IRA than to younger ones. Currently, workers age 50 and older can invest up to $ 25,000 a year in a 401 (k) and up to $ 7,000 in an IRA. In the meantime, those who are under 50, with a maximum of over $ 19,000 and $ 6,000. But let's say you put your savings into an IRA. If you had to shell out $ 6,000 a year over the next 15 years and invest your savings at an average annual return of 7%, you would earn about $ 151,000. On the other hand, if you were to benefit from a $ 1,000 allowance and instead save $ 7,000 a year, you would retire at about $ 176,000 by accepting the same amount of time and returning the investment. These extra $ 25,000 can make a huge difference in your golden years, so it's worth pushing yourself to come up with that extra $ 1,000 a year.
3. Take the Side Noise
There may be a time when you can only cut so much or make so many sacrifices to free up money for your nest. If you have exhausted these options, it may be time to think about side bustle. Of the millions of Americans who have a second gig over a major job, 14% take on that extra work for the express purpose of saving for retirement.
Not only can the second job help give your 401 (k) or IRA a much-needed boost, but it can also be a gig that you can continue to make during retirement to supplement your income on line . And if you've reached your 50s with no savings, chances are you'll need all the money you can get after your full-time career is over.
As of 2016, only 52% of workers age 55 and older saved for retirement in a 401 (k) or IRA, according to the US Government Accountability Office. In the meantime, social security will replace only about 40% of the average income of a worker before retirement, and most seniors need to double that amount to live peacefully. If you're in your 50s with no savings for your golden years, it's time to make some major changes. Otherwise, you will run the risk of struggling financially when it is time to finally leave the workforce.