To get an idea of how far you can go with a late start, look at this recent article from an investment firm’s newsletter. It shows how much someone who’s 55, earns $80,000 a year and has no savings might accumulate in a 401(k) by age 65 under a variety of scenarios.
For example, if the hypothetical 55-year-old contributes 6% of pay, gets 3% annual raises, receives a 3%-of-salary employer match and earns an investment return of 8% a year, he’d have just under $150,000 at 65. That seems eminently doable, and while hardly allowing for a lavish retirement, certainly beats doing nothing.
At the other end of the spectrum, if our imaginary 55-year-old follows the same scenario as above except each year manages to make a Herculean contribution of $16,500 to his 401(k) plus a catch-up contribution of $5,500 (the current maxes for this year), he’ll end up with a much heftier balance of just under $445,000.
These figures aren’t guarantees. Raises and investment returns could come in lower, and hitting big savings targets year after year isn’t a cinch either.
You’re not doomed to a grim post-career existence because you’re starting to save at a relatively advanced age. If you’re willing to make an all-out effort, you can still salvage a decent retirement — and live a heck of a lot better than if you just play Lotto.
While that pedal-to-the-metal effort should start with revving up your savings rate, there are many other things you can also do, ranging from retiring later, working part-time in retirement and delaying Social Security to boost the size of your payments. If you own a home, you can also look into turning your equity into spendable cash while still living there by taking out a reverse mortgage.
Related Information in Prosperity News
- Saving: Building a Nest Egg on a Part-Time Salary
- Study – Improve Retirement Account Return with Target-Date Funds, Managed Accounts & Advice
- Retirement Savings – Families Need To Prepare For Retirement
- An Aggressive Saver Who Can’t Save Enough
- Doing a Roth Conversion may Impact Financial Aid Next Year
- Refinancing Home to Fix Credit Card Debt Problem
- 401(k) Mistake: Turning down free money
- How to Make Your Money Last When You Retire