Nearing retirement requires different savings strategies.
You are nearing retirement.
Perhaps you started saving early in your career.
Maybe you waited to begin saving.
Either way, making wise choices right now before you retire is important.
According to a recent Investopedia article titled “Top Retirement Savings Tips for 55-to-64-Year-Olds,” there are several ways you can still maximize your nest egg when nearing retirement.
What are they?
Max out your 401(k) funding.
Does your employer have a 401(k) plan?
Contribute the maximum amount you can to this fund.
You can defer taxes until retirement and could possibly bring yourself into a lower tax bracket now.
If your plan includes a Roth 401(k), you can pay taxes before contributing and then make these withdrawals tax free in retirement.
Either or both of these strategies should be carefully considered, especially if you take full advantage of an employer match.
By the way, you are making a big mistake if you do not leverage the employer match.
It is “free” money.
Look Over Your 401(k) Allocations.
As you are nearing retirement, you have more money in your nest egg.
With a greater sum, there is more to lose should your aggressive stock allocations drop.
For this reason, you should transfer more to a more conservative portfolio with more bonds and fewer stocks.
Look into an IRA.
What should you do if you do not have a 401(k) through your employer?
You can utilize a personal IRA.
Depending on your income, you can utilize either a tradition IRA, Roth IRA, or both.
Contributions to the traditional IRA are tax-deductible upfront.
With a Roth IRA, taxes are paid prior to contributing the to account so you can benefit from tax-free withdrawals later.
Understand Your Income Sources for Retirement
When nearing retirement in your mid-50s to early 60s, you will have a better idea of how much you can expect from Social Security.
How do you do this?
By using the Social Security Retirement Estimator, you can input your 35 highest earning years get an idea of your monthly check.
Once you know this number, you can adjust the your current savings or work longer to achieve your retirement income goals.
Do Not Touch Your Retirement Savings.
Just because you can take withdrawals from traditional IRAs without penalties at age 59 ½, this does not mean you should.
You could dip into your Roth IRA earlier without withdrawal fees, but you should avoid this.
Your retirement savings are for retirement.
As you are nearing retirement, remember to use them for this purpose.
Remember the Taxes.
How are IRAs taxed?
Traditional IRAs are taxed as ordinary income, not at the capital gains rate.
Ordinary income is typically taxed higher, so be prepared for this reality.
Making wise choices with your money when nearing retirement will allow you to enjoy your golden years more fully.
Reference: Investopedia (June 11, 2019) “Top Retirement Savings Tips for 55-to-64-Year-Olds”