More than 40% of baby boomers are at risk of not being able to pay for basic retirement expenses such as housing and out-of-pocket health care costs, according to a 2010 study by the Employee Benefit Research Institute. But it's not a lost cause: Even if you're in your 50s or older, you can still aim for a comfortable retirement. From cutting spending to taking advantage of higher 401(k) contribution limits, here's how to start making up for lost time.
Max out your retirement accounts. Basic advice, to be sure, but lots of people don't.
- Know your limits. If you're 50 or older, you can contribute an additional $5,500 to a 401(k) (for an annual total of $22,000), and for IRAs, an additional $1,000 (for an annual total of $6,000).
- Set your savings goal. Aim to save at least 20% of your income each year, more if you're way behind. If that puts you over your limit for the tax-advantaged options, put the rest into a taxable brokerage account.
- Additional resources: Find extra money in your budget with a tool like Mint.com; figure out how much you need to save to meet your goal with the SmartMoney Retirement Planner.
Check your investment mix. Many people are overly conservative, experts say, especially if they think they're nearing retirement.
- A rule of thumb: You should have a percentage of stock market exposure equal to about 120 minus your age. So if you're 55, then at least 65% of your portfolio should be in stocks.
- Talk to an adviser. Even savvy investors can use another opinion on their retirement moves to make sure they're saving enough and chosing the right investments.
- Additional resources: Test whether your asset allocation is in line with your goals with this SmartMoney Asset Allocation System. Find a financial advisor using NAPFA.org.
Earn more money. Easier said than done but it may also be easier than squeezing more savings out of an already tight budget. And it needn't be drudgery.
- Look for professional work-at-home gigs. There are lots of jobs for people with bookkeeping, design and communications skills. You can work at night or on the weekends.
- Ask for a raise. Put together a list of your measurable accomplishments and set up a meeting with your boss. Come prepared with the amount of the raise you want.
- Additional resources: Use a site like Elance.com or oDesk.com to find extra work. Check out these helpful tips for landing a raise.
What not to do. If the situation feels desperate, it's easy to make one of these common mistakes.
- Don't carry too much debt. Having debt after you retire raises your monthly expenses in a hurry, and that cuts into the amount of income you'll have to spend each month. Experts recommend that soon-to-be retirees pay off their mortgage, credit card bills and other debts and loans before they retire.
- Don't over- or undermanage your investments. Whether you're laissez-faire or overly meddling, these behaviors can deprive your retirement fund of thousands. A study by T Rowe Price found that investors who rebalanced an initial $100,000 portfolio once a year ended up with roughly $31,000 more over a 20-year period than those who didn't re-balance and nearly $20,000 more than those who rebalanced monthly.
- Not having enough diversification. People can put their portfolios in danger because their investments are too concentrated. The solution: Make sure your holdings are diversified. Financial advisors recommend your portfolio contain a range of index funds, mutual funds, and fixed income investments like bonds.
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