Date: September 20, 2021

I’m 55; Is It Too Late to Plan for Retirement? 5 Reasons the Answer is No

Maybe a job loss early in your career prompted you to “temporarily” pause your retirement contributions, and once you got resettled, you simply forgot to return to your original plan.

Maybe you misguidedly assumed Social Security or a promised inheritance would carry you through your Golden Years and you’re just now realizing it likely won’t.

Or maybe life’s short-term goals simply took priority and you felt you just couldn’t save for retirement, especially when it was still decades away and your focus was starting a family or planting roots in a new home.

We’ve heard a lot of reasons why someone got a late start to their retirement planning, and we get it – life happens! But whatever the reason, if you’re now in your mid-50s or later and hope to retire in the next 10 to 15 years, you can’t put it off any longer! There are strategies that can help you make up for lost time, but your retirement planning should begin now!

Your first step should be to talk with a financial advisor and work out a well-rounded strategy customized to your unique situation. At Heritage Capital, we can help you review your plans, determine how far off you really are from reaching your goals and establish some concrete steps to get you back on track.

If you’re handling your finances on your own, you may assume a more aggressive investment strategy is the answer, but what is an aggressive investment, and is that really the best strategy for you, especially as you get closer to retirement and will soon be living off of your savings?

There are some key retirement ages that you may be able to take advantage of and active portfolio management strategies we talk with clients about who find themselves in this situation.


Are you on track to retire as planned? Contact the team at Heritage Capital and find out.


1. Supercharge Your Contributions

In 2021, the maximum annual amount you can contribute to a 401(k), 403(b) or governmental 457(b) plan if you’re under the age of 50 is $19,500. The contribution limit for an IRA is a lot lower at $6,000 per year for 2021. Are you contributing the max?

Once you turn age 50, you’re able to contribute even more – the IRS doesn’t want you to retire unprepared either! For a 401(k), 403(b) or governmental 457(b) plan, you’re able to increase your annual contributions to $26,000 – that’s another $6,500 in what’s called catch-up contributions that you can put aside to grow tax-free.

If you are in a 403(b) plan and have at least 15 years of service, you may be eligible to make additional contributions beyond the catch-up contributions available to participants who are 50 or older.

Remember, many 401(k) and 403(b) plans come with an employer match, which equates to even more savings – and essentially free money – toward your future. The amount of the matching contribution, if any, varies depending on the plan rules, the percentage match and any limits on matching amounts, so check with your plan administrator to get the applicable details.

For an IRA, you’re able to contribute another $1,000 a year in catch-up contributions once you turn age 50.

Making catch-up contributions is an excellent way for individuals who got a late start to retirement planning to increase their retirement nest eggs.

Talk to a financial advisor about your options.

For other age-based retirement perks, read our recent blog post: Important Retirement Ages. You don’t want to miss other opportunities to accelerate your retirement savings at age 59, 62, 67, 70 and beyond!


2. Accelerate Your Strategy by Increasing Your Risk

As mentioned above, taking on a more aggressive investment strategy is not the right move for everyone, regardless of where you are in your retirement planning journey.

To determine if you can afford to take on more risk for potentially higher returns, first review your investment objectives. This is especially important as you near retirement. Recovering from financial loss right before retirement age can be difficult. Read our recent blog post.

Instead of an overly aggressive investment strategy, at Heritage Capital, we may suggest a balanced approach, which can exhibit moderate growth of capital while simultaneously dampening volatility. Many of our balanced portfolios have an intermediate time horizon of five to 10 years.

Taking an aggressive-growth strategy can be risky! Talk to a financial advisor about the potential outcomes of an overly aggressive approach. You don’t want to make your situation worse!


3. Roth Conversions

Another strategy that can help when you get a late start to retirement planning is a Roth conversion.

A Roth conversion is the process of transferring the funds in a Traditional retirement account to a Roth account, which allows you take withdrawals tax-free in retirement. This is another strategy that should be discussed with a financial advisor before making a decision, because it’s not the best move for everyone. Also, when you do a Roth conversion, the transferred amount is included in your taxable income for the year, which can make your year’s tax bill exceptionally large!

A Roth conversion might be a good strategy if any of the following are true:

  • Your income is reduced for the year.
  • You expect to fall in a higher tax bracket in retirement.
  • You have the funds to pay the tax bill on the transferred amount.
  • You are worried about leaving your beneficiaries with a large tax obligation.

Roth and Traditional IRAs have the same contribution limits, but you contribute after-tax earnings to a Roth IRA. That’s why withdrawn contributions are always free, and so are withdrawn earnings that satisfy the following two conditions:

  • You are at least 59-½ years old (some exceptions apply)
  • Your account has been open for at least five years following the initial deposit

A conversion also eliminates Required Minimum Distributions (RMDs), as they don’t apply to Roth accounts.

Discuss your situation with a financial advisor you trust!


4. Cashing in on Your Assets

We’ve talked with many clients recently about selling their homes or second homes and cashing in on the current housing boom.

If you are an empty-nester, you may not need a large home, which usually is accompanied by large maintenance costs and large property taxes. Downsizing might make a lot of sense. Not only do lower housing prices equate to less pull on your retirement money, but if you’re able to make a profit from the sale, especially on a second home, these funds can be diverted back to your retirement.

Again, discuss your specific situation with a financial advisor to see what makes the most sense for you.


5. Know Your Options

As you approach retirement, make sure to review your plans and see if you can make any adjustments. You may have options, such as:

  • Postponing retirement: If you feel like you haven’t accumulated sufficient wealth to retire comfortably, then don’t retire yet. You may be able to continue at your current job, seek a different one, cut back your hours to work part-time, etc. The longer you work, the more savings and investments you can accumulate, and the less time they’ll have to stretch. You can also save money if you’re eligible for employer-sponsored healthcare plans and don’t yet qualify for Medicare.
  • Delaying your Social Security benefits: You can begin taking Social Security benefits at age 62, but the longer you wait, the more your monthly checks will be (up to age 70). For more on how these benefits work, check out our new guide: Understanding Social Security.
  • Paying down debt: Getting rid of your debt now will free up your income for other uses once you stop working, and if you’re able to put the money you would be paying in interest toward your retirement instead, that money can grow even more.


Talk to a Financial Advisor

Of all the reasons to use a financial advisor, facing retirement in your mid-50s without a plan is a good one!

The team at Heritage Capital has been helping people retire with confidence for more than 30 years. We use active portfolio management strategies and comprehensive financial planning to help clients control their risks, so they can experience a successful retirement, no matter what happens with the markets or the world. Don’t wait any longer. Contact me directly and get a conversation started.

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Paul Schatz, President, Heritage Capital