Catch-up on Your Retirement
Savings Even at 60
By Shane Flait © 2008
My wife and I are self-employed.
We’ve raised our kids but now
that we’re both 60 we have no
retirement plan beyond an IRA
and some savings. We gross over
$100,000 a year, but over 35
percent goes to income taxes.
“Is it too late to create a
retirement at this stage of our
life?”
This circumstance is more common
they you think. But, yes, you
can always enhance your
retirement prospects.
Ultimately, you want to create
enough retirement income – so
you don’t have to work. The
three pillars of retirement are
income from your social
security, your pension (a
defined benefit plan), and your
savings (including your defined
contribution plans).
Neither Bill nor his wife has a
pension but they both have an
IRA and will get social
security. Beyond that, Bill and
his wife – both- must commit to
saving as large a portion of
their income starting now while
they can work.
They can begin by contributing
$6,000 a year to an IRA –since
they’re both over 50 giving them
that extra $1,000 catch-up. With
the high taxes they pay they
should contribute to the
traditional IRA for the
deduction if gives them.
Also by creating a SEP IRA - a
retirement savings account
designed for the self-employed –
they can contribute much more
than they can to their
traditional IRA. This can be as
much as 25 percent of their
self-employment income –after
deducting their SEP IRA
contribution - up to a maximum
of $44,000. This redirects
potential taxes into their
savings.
They should consider postponing
retirement to maximize savings
and eventual social security
income. Those extra years of
saving will help a lot. A
65-year-old with just $50,000
saved who puts off retiring for
three years and saves $500 a
month during that time could
have $78,000 by age 68, assuming
a hypothetical 7.5 percent
annual return.
Additionally, by working a few
more years, they can postpone
taking Social Security, which
will increase their eventual
monthly Social Security Benefit.
Delaying beyond age 62, your
payment will increase by roughly
7 percent each year until you
reach full retirement age.
If they put off taking benefits
beyond full retirement age,
their payment rises anywhere
from 5.5 percent to 8 percent,
depending on the year they were
born. Benefit increases stop at
age 70.
Invest aggressively but not
unguarded. Being in their early
to mid-60s, they might keep
about half of their retirement
savings in stocks and the rest
in bonds. But diversify for
safety.
Clamping down on unnecessary
expense now is important - and
they should get out of consumer
debt. When they do retire, they
may want to consider moving to
where quality of life is good
but much less expensive. This
could be off-shore.
Shane Flait is a writer and
educator. See more at
www.EasyRetirementKnowHow.com
