How to Retire at 62 with Little Money
This sounds like wishful thinking for many, but surprisingly it’s within reach. The key is to evaluate your current assets, estimate future income, and think about your desired retirement lifestyle – including whether you’re willing to work part-time and how you’ll pay for healthcare.
For many seniors, healthcare is the largest expense to contend with. If you’re planning to retire at 62, there will be a three-year gap until Medicare kicks in. How will you pay for health coverage? Through insurance or out-of-pocket? Assuming you stay healthy or you use your health savings account, that might not be too concerning. If not, due diligence is required.
What if You’re 60 and Have No Retirement Savings?
Saving for retirement is prudent, but it’s become increasingly difficult for many Americans. According to Northwestern Mutual’s 2019 Planning & Progress Study, 15% of Americans have nothing saved, while 22% have less than $5,000 saved for retirement. Those statistics are grim as it relates to the average retirement savings for a 60-year-old. At this point, you may be wondering: How Much of Your Income Should You Invest for Retirement?
You’re 60, So What Now?
With longer lifespans, knowing where to invest your money at age 60 is crucial. However, knowing where to put retirement money after retirement is the challenge. Tips to help maximize your retirement savings include:
- Backdoor Roth IRAs: If you’ve already maxed out retirement savings options, if you can leave funds in a Roth for at least five years, and do not have other pre-tax IRA assets, then you should consider this option.
- Retiring in the Right State: Where to live is probably one of the most personal decisions you make. It’s not just about preferences, but also the financial considerations associated with it.
- Retirement Tax Credit: In addition to other tax benefits for saving in a retirement account, this credit gives a special tax break to low- and moderate-income taxpayers. The credit amount is determined by multiple factors, such as an individual’s retirement plan contribution, tax filing status, and adjusted gross income.
- 401(k) Company Match: Depending on the terms of your employer’s 401(k) plan, catch-up contributions made to 401(k)s or other qualified retirement savings plans can be matched by employer contributions. However, the matching of catch-up contributions is not required. The IRS limits the total amount of annual contributions to 401(k)s by both the employee and employer. Subsequently, it is important to know and understand rules and restrictions to contributions.
- Self-Employed Savings Options: Self-Employed 401(k)s are special savings options for small business owners who don’t have any employees (except for a spouse). This type of account is a good fit for sole proprietors and independent consultants who are looking for a retirement plan similar to one they might get from working at a large company. Since participants act as both employer and employee, they can set aside more money each year than they could under a traditional 401(k) or IRA.
- Benefit from Getting Older: There is a plethora of retirement savings options available to workers 50 and older – including a 401(k) tax deferral of up to $26,000 and IRA contributions of $7,000. High-deductible health plan participants are also eligible to put an extra $1,000 in a health savings account at age 55 or older.
What are the Best Retirement Portfolios for a 60-Year-Old?
Common knowledge tells us that as we get older, we need to shift more assets into safer investments – such as bonds and bond-like instruments. However, it generally makes sense to continue investing some of your portfolio in stocks even at age 60 or beyond. Although stocks come with a relatively high risk of losses, completely eliminating them from your portfolio exposes you to a different kind of risk: the risk that you’ll exhaust your savings because they’re not growing fast enough to keep up with inflation.
Fortunately, there are safer, more responsible ways to maintain some stock exposure as you reach retirement.
A hands-on approach to designing your investment portfolio is recommended. Exchange-traded funds (ETFs), like target-date funds, own a number of investments. However, unlike target-date funds, ETFs allow investors to focus on specific groups of equities and bonds depending on your investing style and goals. They have lower expense ratios than traditional mutual funds and are also more liquid because they can be bought and sold anytime, much like individual stocks.
Have a Retirement Plan
One of the most challenging aspects of creating a comprehensive retirement plan is striking a balance between realistic return expectations and a desired standard of living. It is best to create a flexible portfolio that can be updated regularly to account for changing market conditions and retirement objectives.
Now is the time to make sure that you prepare your retirement plan, including ways you’ll curb expenses and boost income.
Click here to take a Free Retirement Review and schedule a complimentary call with an Income Specialist from The Retirement Income Store who can help explain the best strategies for you based on your particular situation.