If you’re turning 50 years old this year, remember: You’re not getting older, you’re getting better. And so are your retirement savings options. Once you turn 50, you’re allowed to add up to $1,000 in annual “catch-up” contributions to your Individual Retirement Account and $6,500 to your 401(k), 403(b), SARSEP or 457(b). So that means you can set aside $7,000 for your IRA (with the $1,000 catch-up contribution) and $27,000 for your 401(k) or 403(b) with a $6,500 catch-up contribution. But first you have to find the money. Here’s are seven common ways to fund your catch-up retirement contributions.
A financial advisor can help you create a financial plan for your retirement savings needs and goals.
For an IRA, a worker putting 10% of their pre-tax earnings into a retirement account would need to make $60,000 a year to hit just the $6,000 annual contribution limit, which is several thousand dollars more than the median U.S. personal income of $56,287, and well more than the earnings of the half of U.S. workers making less than the median amount. With inflation hitting 8.5% in July, plus the financial hits that older workers took during the pandemic, finding the money for that extra $1,000 in catch-up contributions can be a challenge.
For a 401(k), 403(b), SARSEP or 457(b), $27,000 (including the $6,500 catch-up contribution) is 45% of a $60,000 salary.
The place to start hunting for that extra cash is by taking a close look at your recurring monthly expenses, then trim from there. Every dollar saved is better than $1 earned because whatever spending you cut leaves you with after-tax money. For someone in the 25% tax bracket, that $1 of saved spending equals $1.33 in wages.
And every $1 cut from your recurring monthly savings means your savings continue every month, equaling $16 a year.
7 Ways to Fund Catch-Up Retirement Contributions
The biggest cuts are likely to come for your biggest spending areas: housing, transportation, food, insurance and utilities, but you can find plenty of other spending to trim, as well. Here are seven places to start looking in your budget:
Bank and credit-card statements: Scrutinize every line of your statements banking for recurring charges that you can easily live without. This can include forgotten subscriptions to websites and publications, credit-card insurance, overlooked maintenance contracts, gym memberships, buyers’ clubs and so on. This kind of mindless spending can produce a surprising amount of savings.
Utility statements: Comb through these to see if you’ve got add-on charges you can cancel, such as maintenance contracts, call-forwarding, insurance for devices that’s covered by your homeowner’s or renter’s policy and others.
Cable, cellphone and internet: Ask whether there’s a cheaper cable package that gives you the channels you use most frequently, and whether there’s a discount if you sign up for automated payments. Your employer may qualify for a discount to your cellphone service, and some fancy ringtones actually charge a month subscription fee. Cable, phone and Internet providers will look for deals they can offer to keep a current customer, then see if another provider can beat it.
Comparison shop: Checking the latest offers on Internet, cellphone, cable service and any kind of insurance is nearly guaranteed to unveil savings – often without having to switch providers. A call to your insurance agent my reveal discounts for age, good grades, being a safe driver, eliminating add-on coverage and raising your deductible.
Housing: Refinancing a mortgage might not save money at this point, but if you have a high home-loan rate because of past poor credit when you took out the mortgage, see if your history has improved where you can qualify for a lower loan rate. Cancel your lawn service and mow your own yard, and ask whether adding things such as fire extinguishers or smoke detectors will cut your homeowner’s insurance bill.
Food: Shop just once a week and check out your store’s digital coupons and membership cards, switch to generics and buy multiple packages when an item goes on sale. Packing your own lunch instead of eating out is a classic savings maneuver, as is reducing your restaurant dining.
Just save it: Many families don’t have any kind of formal budget and tend to spend what they make while trying to save whatever money is leftover at the end of the month. Instead, prioritize and automate your savings so that money is sent to your retirement account before you even see your paycheck. Then, spend what’s left, knowing you’re on track to meet your savings goals.
Workers age 50 and older can add up to $1,000 in annual “catch-up” contributions to their Individual Retirement Accounts, and $6,500 for 401(k)s, 403(b)s, SARSEP or 457(b) plans. Creating a financial plan can help you reach your retirement savings goals now to fund your golden years later.
Retirement Savings Tips
- A financial advisor can help you create a financial plan for your retirement savings. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- SmartAsset’s free investment calculator can help you estimate how much your money could grow over time.
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