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As you think ahead to retirement, do you ever worry that your savings nest egg may come up short? If so, you aren’t alone. Many Americans are finding that they are not as prepared for retirement as they should be.
The good news is that if you’re employed, it means that you may still have time to get your retirement fund in order. Take advantage of your sense of urgency, favorable tax rules and your current paycheck to devote more toward retirement savings. Whatever you can afford to save today has the potential to make a difference once you retire.
“Catch-up” rules are helpful
Current tax laws tend to work to your benefit as you grow older, most notably “catch-up” contributions, which are designed for those 50 and older. At this age, you can contribute an additional $1,000 annually, or a total of $6,500 per year (or 100 percent of your earned income, whichever is less) in either a traditional or Roth Individual Retirement Account (IRA). The maximum for those under 50 is $5,500 per year.
Older workers can save significantly more through their workplace retirement plan as well. While the standard limit for annual contributions through salary deferral for 401(k), 403(b) and 457 plans is $18,000 per year, those 50 and older are allowed to set aside as much as $24,000 annually in these plans.
If you’re able to allocate more money to retirement starting at age 50, the impact on the total amount you have saved can be significant. If you “max out” your contributions to workplace savings plans and IRAs, that would amount to an extra $7,000 per year, or $14,000 annually for a couple. A couple that continued to save the extra $14,000 each year of work until retiring after reaching age 66 could put an additional $238,000 into their retirement plan. That does not factor in any market swings, including potential growth that may occur from investing those dollars.
Other reasons to be encouraged
As the clock ticks down toward retirement, there are other steps you can take to solidify your nest egg:
Saving for retirement can be overwhelming, especially if you think your nest egg may be insufficient. However, focusing even a little attention on your retirement fund today can help you feel more confident that you’ll have enough money to last.