Saving for retirement is stressful for many Americans. This is especially true if, as you get closer to this huge life change, you slowly start to realize that you may not have enough saved to sustain you and your spouse or partner. This realization is enough to turn you upside down emotionally. As you get closer to retirement, and get more serious about making a financial plan, you may start to wonder how you can grow your retirement income and live the retirement lifestyle you’ve always imagined.
Unfortunately, there’s no substitute for time. Saving and investing for as long as you can is the best way to ensure a well-padded retirement savings. However, there are a few things to do if you’re getting closer to retirement and are finding that you’re behind the ball when it comes to saving.
Consider the Bucket Strategy
The bucket strategy is a method of retirement savings that requires you to save your money in “buckets.” Traditionally, this means dividing your current retirement savings into a few different buckets based on the number of years into retirement when you’ll need those funds. For example, you may have:
Bucket One: 0-5 years
Bucket Two: 5-10 years
Bucket Three: 10-15 years
And so on.
These buckets will be allocated based on the risk tolerance you’ll have given the timeline in which you expect to need the income from each “bucket.” For example, with funds in Bucket #3, you may be able to take on riskier investments that have a potentially higher pay-out if you won’t need those funds for a longer period of time because they’ll have more time to balance should they take a hit in a down market. As you move through retirement, a financial planner can help you to develop a strategy to replenish each bucket and adjust their allocation accordingly.
One way to maximize retirement income is to stay in the workforce for a longer period of time. If this is an option for you, you can accomplish a few different things:
If working at your current job for a longer period of time isn’t an option, or isn’t a desirable option, you might consider pursuing an encore career. This could be anything from teaching part time at a local community college based on your previous career and areas of expertise to freelance writing in your spare time. Earning an income during retirement, even if it’s not through a full-time job, can help to extend the life of your retirement savings, relieve stress around the lack of savings you’re currently worried about, and provide you with a meaningful way to spend your time - something many retirees forget to plan for.
When it’s possible, it’s wise to pay off all of your debt before you enter retirement. This includes your mortgage, if applicable. In some cases, you may look to sell your home and downsize if it looks like you may carry a hefty mortgage into your life as a retiree. The fewer liabilities you have, the more mileage you’ll get out of the savings you currently have and any additional streams of income you choose to pursue during retirement.
There’s a very real possibility when you take debt into retirement that you’ll be unable to pay it off, or you’ll be forced to dedicate even more of your limited savings to payments. The last thing you want is to be restricted and unhappy during your years as a retiree, and you definitely don’t want to pass that debt on to your heirs in the event that you pass away.
If you’re 50 years old (or older), check to see if you’re eligible to take advantage of catch-up contribution limits in your retirement savings account. If you’re currently enrolled in a plan through your employer, like a 401(k), you’ll be able to contribute $18,500 each year plus an additional “catch up” contribution of $6,000. If you’re enrolled in an IRA, you can typically contribute an additional $1,000 to your account on top of annual limits if you’re 50 years old or older.
When you’re working to save more for retirement, or maximize your current savings, it can help to talk through your options with a financial planner. At Wisely Advised, we’re here to help you develop a strategy that’s ideal for your lifestyle and financial situation - even if you don’t feel like you have enough saved yet! Contact us today to set up an obligation-free consultation.
Tony Velasquez is the Founder and Managing Director of Wisely Advised an Illinois Registered Investment Advisor. Wisely Advised provides comprehensive financial planning and investment advisory services to both individual and business clients. You can learn more about Tony and his firm here.
Tony Velasquez runs Wisely Advised, LLC a full-service Registered Investment Advisory Firm offering comprehensive financial planning and investment advisory services to individuals, families, and businesses.
Whether it's traveling, being at the beach, or at his family's ranch in Texas, Tony loves enjoying time with his family and friends.