Published: February 2016
Q: I’m past mid-career and now realize I may need to save more to retire comfortably. What options should I consider?
A: “It's smart to consider increasing your retirement contributions while you’re still working and can adjust how much you put away for the future,” says Odis Mack, an Allstate agency owner in Houston, Texas. “But you’re not alone in feeling behind. Lots of folks in their 40s and 50s focus on buying homes, raising kids and maybe paying for college tuition,” he says. “Retirement investing may get put on the back burner.”
You have a variety of retirement options, says Mack. But first, he encourages you to set up an emergency fund of up to six months’ worth of essential living expenses in a savings account. “You don’t want to borrow from your retirement account if you hit a financial snag,” he says.
You also may want to consider these options:
“Your company 401(k) should always be the first place you invest for retirement,” says Mack. Why? It’s easy to have your contributions deducted automatically from your paycheck, and many companies offer a match on employees’ contributions.
“Always, always contribute at least enough to your work plan to get that match — it’s free money,” advises Mack. And, if your company retirement plan has a wide range of investment options, Mack suggests increasing the amount you sock away until you’re investing up to 15 percent of your gross salary.
Another option Mack likes: If you’re age 50 or older, you may be able to make additional “catch-up contributions" to your 401(k), according to the Internal Revenue Service (IRS). The agency notes that older employees may be able to contribute up to $6,000 extra per year to their plans to help ensure that they have enough for retirement.
A smart way to be sure you’re investing enough to retire comfortably: Have a financial adviser review your plan and help you decide how much you need to invest to hit your goal, says Mack.
In addition to your employer’s retirement plan, you may be able to open your own retirement accounts, notes Mack. “Through Allstate, for instance, we give you access to more than 900 different mutual funds, so you can really diversify your retirement investment plan,” he says. Some options:
- Roth IRA. This is one of Mack’s favorite retirement options after your workplace plan. “You don’t get a tax break up front on the money you invest in a Roth, but all of your contributions and your fund’s earning may be tax free as long as you meet the program's requirements for withdrawing money during retirement," he says. Roth IRAs have income-eligibility and maximum-contribution rules, so check with your financial professional. Like 401(k)s, IRAs let you make additional “catch-up contributions” if you’re age 50 or older, according to the IRS.
- Traditional IRA. Like a 401(k), you may earn an annual tax deduction on the money you invest in this account, says Mack. Your money is taxed later, when you withdraw it during retirement. If you switch jobs, you may be able to roll over all or part of your work 401(k) to a traditional IRA, says Mack.
In all of the above accounts, Mack says you can typically choose to invest in individual stocks or bonds, or mutual funds.
You also have another option for bolstering your retirement nest egg, says Mack:
- Annuities. If you’re concerned about income from your investment accounts fluctuating over the years, an annuity may be helpful, says Mack. These accounts can create a guaranteed, stable income stream that lasts for a particular period of time (say, 10 years) or your entire lifetime, depending on the type you choose.
However you choose to invest more toward your retirement, do it as soon as you can, says Mack. "You may need to make some trades to be able to afford to invest more — such as downsizing your house after the kids leave or working a few extra years — but it may be worth it,” he says. “If you make some of those hard choices now, you can save more for a fun and happy retirement later."
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