What can baby boomers who haven’t saved enough — or anything at all — do to prepare for retirement? If you count yourself among the baby boomers who need to play catch up with their retirement savings, the Nevada Society of CPAs provides the following advice to get you started:
Review the estimate of your projected social security benefits
The Social Security Administration will mail individuals Personal Earnings and Benefit Estimate Statements approximately three months before a person’s birthday showing projected benefits at age 62, your full retirement age, and age 70. Reviewing this statement in detail can help baby boomers determine how much they may need to supplement Social Security income.
Maximize retirement plan contributions
One excellent way to save for retirement and defer taxes is to take maximum advantage of a retirement plan at work. A 401(k) allows you to invest money directly from your paycheck, before taxes. What’s more, companies frequently match employees’ contributions. Money in qualified retirement accounts grows tax- free until it’s withdrawn in retirement. Self-employed individuals can open a Keogh, SIMPLE, or SEP retirement plan.
Don’t Invest Too Conservatively
The biggest challenge is to invest aggressively enough to overcome a late start, without seriously putting your financial future in jeopardy. For all but the baby boomers who are ten years away from retirement, it’s not too late to invest a substantial portion of retirement funds in stocks, as long as your portfolio is diversified. Over the long term, stocks have historically outpaced other investments. As you get closer to retirement age, you should adjust the allocation of your assets.
Don’t get sidetracked
Baby boomers are often torn between saving for retirement and putting money away for their children’s college education. Experts say that you should make saving for retirement your priority. If you don’t have enough to cover tuition bills, your children can apply for financial aid or student loans. You won’t have those options when you retire.
Fund an IRA
There have been so many changes to Individual Retirement Accounts (IRAs) that many people are confused about eligibility and tax implications. To set the record straight, everyone, even if covered by another retirement plan, can contribute to an IRA. Your contribution may or may not be deductible. This depends on your income and whether you or your spouse is covered by another plan. But even if your contribution is not deductible, the money invested in your IRA grows and compounds each year on a tax- deferred basis. This tax break can significantly enhance the growth of your retirement fund.
Get serious about spending less
Track how you spend your money for a month. Then determine where you can make cuts and redirect your savings to your retirement nest egg. Better yet, arrange to have your bank transfer a fixed amount each month to a mutual fund. You often don’t miss what you don’t see.
Prepare to work in retirement
In a study conducted by the AARP, a ful1 80 percent of baby boomers surveyed said they plan to work at least part time in retirement. If necessary, take a course to update your skills or, if you’re looking to do something different, focus on developing a hobby or interest that could provide you with self-employment income in retirement.
Hold out for more
When you work beyond your normal full retirement age and delay taking Social Security benefits, you earn a bonus for each year (until you reach 70) that you don’t collect. When you eventually start taking your benefits, your monthly benefit will be higher based on the bonus(es) you have earned. And in many cases, the extra year(s) of employment mean the wage base on which your benefit is calculated will go up as well, resulting in an even higher monthly benefit
Take it one step at a time
Don’t be overwhelmed by the amount you may need to save. Instead, CPAs say you should focus on cutting expenses and diverting your savings to retirement savings. For most baby boomers, a comfortable retirement is within reach.