by
Carl Hampton
08/04/2006
I've been receiving a great many letters
lately that go something like this!
"I'm about to turn 50 and I've just
started planning for retirement! Any
ideas?" Great question! Something you
should have asked 15 to 20 years ago but
never mind, better late than never.
Most of the mail comes from self-employed
people who broke the number one cardinal
rule of self-employment - they didn't pay
themselves first. They put everything back
into their business. This predicament is a
common one. The Employee Benefits Research
Institute reports that more than half of the
self-employed aged between 45 to 54 have
saved less than $50,000 for retirement. A
recent Fidelity study found that the average
baby boomer is on track to replace just 60%
of his or her current income in retirement,
even with help from Social Security and
pensions.
Why are we so unprepared? The simple
explanation to this question is that we as
baby boomers are a generation of
grasshoppers who fiddled away our youth when
we should have been saving. You could say
that the financial pressures we all face
have made it very tough for us to save. The
list normally starts with college fees and
helping aging parents, higher prices for
housing and medical insurance. We baby
boomers have never been one for self-denial
If we wanted it, we got it.
You've all heard this advice before, save as
much as you can in an IRA or 401K plan. At
50, you are more than likely to have entered
your peak earning years. Let's say you
channel an annual 3% raise into a retirement
plan. That's another $2,250 in savings if
you're making $75,000 a year. Saving the
equivalent of an extra $10 a day in an IRA
or 401K will increase your savings by more
than $100,000 over 15 years if your
investments earns you 8% a year.
The IRS rules allows workers over the age of
50 to put more money into individual
retirement accounts and workplace retirement
plans. For 401Ks, this catch-up provision
brings your maximum contribution to $20,000
a year. Assuming you're eligible, choose the
immediate tax break that comes with a
deductible IRA rather than a Roth IRA's tax
free withdrawals. "If you're behind on
retirement saving, your tax bracket will
probably be lower in retirement than it is
now," reasons financial planner Greg
Schultz of Retirement Planning in Walnut
Creek, Calif. The immediate tax break is
worth more to you."
If, like most of us, you haven't managed to
save to much by 50, it's more likely because
you spend more than you can afford. There's
a silver lining to this, the worse our
spending habits, the more room there is for
improvement.
The first thing to do is create a budget. If
you already have one, revise it to reflect
your new goals and target. You should
organize your outlays by category, and try
to identify the areas that are stopping you
from reaching those goals and targets. Try
to stop the wasteful or bad habits and
chances are over the last five decades you
have developed a few.
Whatever you do, you must save more,
downsize, rethink your retirement age - it's
time for action. Once you get started,
you'll going to feel much better, and for
good reason. Just facing the issue head on
will give you hope. There's no need to be
fearful of the future anymore.
