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Retirement Catch-Up Strategies to Help You Get Back on Track

Key Takeaways

  • The maximum annual 401(k) contribution in 2018 is $18,500 for those under 50 and $24,500 for those 50 and older.
  • Roth IRA contributions are made after taxes and therefore withdrawals are not taxed.
  • Depending on the severity of your retirement shortfalls, you could consider taking those funds and investing them with the hopes of higher returns.

If you’ve recently reviewed your retirement plan and were discouraged by what you saw, you’re probably looking to revisit your strategy to get back on track.

Retirement savings shortfalls are a common stressor: 40% of workers are “not too confident” or “not at all confident” that they’ll have enough money to live comfortably throughout their retirement years, according to 2017 Employee Benefit Research Institute data. Going further, 47% of households have less than $25,000 in retirement savings and investments.

Want to make up for lost time? Here are three action items to help jumpstart your retirement contributions.

1. Consider maxing out your 401(k) contributions

Begin by revisiting how much you regularly contribute to your 401(k). This is the first step in ramping up your nest egg. The maximum annual contribution for 2018 is $18,500 for those under 50 and $24,500 for those 50 and older. It can benefit you in the future if you reach those contribution limits, even if it involves cutting back in some areas now.

Maximizing your 401(k) can be the turnaround you’re looking for in your nest egg. Consider this example: If you have $0 in retirement savings at age 40 but start contributing $18,500 a year for the next 25 years, your 401(k) could be worth more than $1.25 million at the end of that window, assuming a hypothetical 7% annual rate of return. And that doesn’t even factor in any matching contributions made by your employer.

Similarly, if you’re 50 and start contributing the maximum $24,500 per year for 15 years, your 401(k) could be worth more than $658,000 (under the same hypothetical scenario).

2. Consider opening or maxing out a Roth IRA

Outside of your 401(k) contributions, you can open or max out your contributions to a Roth Individual Retirement Account (IRA) if you satisfy the necessary requirements based on income and tax-filing status.

According to the IRS, married couples that file jointly can contribute up to the limit — $5,500 for individuals under 50 and $6,500 for those 50 and older — if their joint income is less than $189,000. They can contribute a reduced amount if their income is between $189,000 and $199,000. Couples whose income meets or exceeds $199,000 are not eligible to make contributions.

For single individuals, maximum contributions can be made if your income is below $120,000; reduced contributions between $120,000 and $135,000; and no contributions if income exceeds $135,000.

Remember that contributions to Roth IRAs are made after taxes, but withdrawals are not taxed. Another important distinction: There are no required minimum distributions (RMDs) for Roth IRAs, so you can withhold distributions for as long as you choose. Meanwhile, RMDs for Traditional IRAs typically begin at age 70 ½.

3. Consider investing funds from low-yielding accounts

Do you have savings in a certificate of deposit (CD) or money market? Depending on the severity of your retirement shortfalls, you could consider taking those funds and invest them with the hopes of higher returns.

Of course, investing involves risk, so you’ll need to consider how far away you are from your goal before trying to close the gap through investments. But in exchange for taking on risk, moving funds from lower-yielding accounts to a new or current investment portfolio could produce higher returns.

The bottom line

Implementing retirement catch-up strategies is bound to involve some sacrifice, but it’s easier to make these changes when you remember what you’re striving for: your dream retirement. Just as you allotted resources to more immediate financial needs in previous years, you’ll want to do the same now as you attempt to jumpstart your retirement funds. You might even consider tinkering with your expectations for retirement to give you a more attainable goal. But the important thing is to consider making the necessary changes promptly so you give yourself enough time to play catch up.

More information

Everyone has their own expectations and goals for retirement. To learn how we can help you prepare for the retirement you want, schedule a Citizens Retirement Checkup at your nearest Citizens Bank branch.

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