We hear scary stats about how bad money decisions compromise people’s retirement future all the time.
Just the other day, we told you how Americans owed more than $1 trillion in credit card debt at the end of 2017. That staggering figure surpasses the previous high set during the Great Recession of 2008, and it’s sure to put a drag on workers’ ability to save for retirement.
Well, here’s another doozy that’s sure to strike fear in your heart: Approximately 50% of people 75 years old or older have outstanding debt. That’s according to the Employee Benefit Research Institute’s latest report titled Debt of the Elderly and Near Elderly, 1992 – 2016.
It’s never too late to start saving for retirement
As our population ages, it’s easy to envision a frightening world where people are debt-saddled until their last breath. But the demographics of a graying population doesn’t have to be your destiny.
The good news is that even as late as into the last decade of your working life, it is possible to right your retirement ship.
Here are five strategies you can put into play to build your retirement nest egg…
Take baby steps into savings
If you’re saving nothing right now, start small. Save one penny out of every dollar you make. That’s 1% of your income. Then every six months, step it up by one more penny. In five years, you’ll be saving 10%. See our investment guide for help getting started.
Make sure you pick up your company match
According to estimates from benefits administrator Hewitt Associates, almost one in three people who are eligible for an employer match in their 401(k) don’t take advantage of it.
But if you’re leaving an employer match at work on the table, you’re denying yourself an automatic pay raise. “Think of an employer match like a bribe to get you to save money,” money expect Clark Howard says. “I want you to take the bribe!”
However, Clark does have one caveat for you here. He says you shouldn’t necessarily contribute more than the amount to pick up the maximum match in your employer retirement plan.
Once you reach that threshold in your 401(k), Clark’s preference is that you direct additional retirement money to a Roth IRA.
Earnings on a Roth are tax-free and tax-free withdrawals can be made after age 59 and a half. By contrast, every dollar in a 401(k) will be taxed when you use it in retirement.
Having both piles of money to draw from in retirement — both taxable in your 401(k) and tax-free in your Roth IRA — gives you additional flexibility down the road.
Play catch-up with your retirement savings
If you’re 50 or older, you can make an additional $1,000 catch-up contribution to your Roth IRA. That means you can sock away $6,500 per year instead of $5,500 in 2018.
For 401(k)s, you can pile an extra $6,000 into your employer retirement account when you’re 50 or older.
Get free money to save for retirement
Did you know you could get up to $1,000 as a reward for saving money with a little-known tax credit called the Saver’s Credit?
If you earn somewhere in the mid 20s to the mid 30s (or less) in adjusted gross income and you still manage to save in a retirement account, the government will match your money by kicking in as much as an additional 50% of your contribution.
You can read more about the Saver’s Credit here.
Consider working with a fee-only financial planner
Enlisting the services of a financial planner is something Clark recommends after you’ve built up some assets in life.
If you’re still in the early stages of the asset-building process, it’s fine to take a more hands-off approach by working with a roboadvisor who can set your asset allocation — preferably into low-cost index funds — according to your age and risk tolerance.
But once you get sizable money together, Clark recommends fee-only financial planners.
“Fee-only” means these professionals earn their income on a hourly or ongoing basis, not on commissions from the investments they steer you toward. So there’s no conflict of interest there when they work on your behalf.
Visit NAPFA.org (National Association of Personal Financial Advisors) for ongoing fee-only help planning for retirement. GarrettPlanningNetwork.com, meanwhile, is a better choice if you only want one-time advice on an hourly basis.