Playing Catch Up: 6 Strategies When You Get a Late Start to Retirement Planning

If you’re a little late (or a lot late) in your retirement planning journey, don’t panic. There are things you can do to help make up for lost time! Giving up hope is not the answer. As the saying goes, better late than never, right?

There are many reasons why you might be behind: Kids, bills, short-term goals, financial setbacks or changes – just life in general, we get it. But what matters is that you’re ready now.

If you’re five or less years from retirement, you may be wondering what you can do to get ahead in a hurry so you’re still able to get that San Antonio retirement life you had hoped for. An online search may uncover a few “quick fixes,” but are they right for you? For example, some investors assume they should take on riskier investments that yield higher returns, but what if they don’t? An inappropriate amount of risk in your portfolio can leave you in worse shape if things don’t go as hoped.

The good news is there are safe and efficient ways to achieve your retirement goals, even if you have less time to plan for them. The key is making sure a specific strategy works for you.

For example, what you’ve lost out on in terms of time and potential for growth/compounding, some people are able to make up for in saving aggressively and/or cutting back on expenses they may not really need. The other good news here is as you get closer to retirement, it’s likely you’re in your peak years of earning. Are you able to pay off your mortgage or your children’s college tuition before pivoting into retirement? Not having those large bills over your head can improve your financial situation significantly.

The team at PAX Financial Group has compiled the following 6 strategies that can help you jump-start your late-stage retirement planning.

Retirement planning can be complicated, but you don’t have to go it alone! Schedule a no-obligation conversation with PAX Financial Group to see how we can help.

1. Take Advantage of Catch-Up Contributions

The IRS allows accountholders who are 50 or older to make annual catch-up contributions to certain retirement plans, in addition to the annual contribution limits. This can be especially helpful for anyone who started saving for retirement late.

In 2021, individuals can contribute up to $19,500 to a 401(k), but once you turn 50, you’re able to contribute an additional $6,500 in catch-up contributions, for a total of $26,000.

The catch-up contribution limit for Individual Retirement Accounts (IRAs) in 2021 is $1,000, on top of the annual contribution limit of $6,000, for a total of $7,000 in savings.

For more information about catch-up contributions and specific plan limits, visit the IRS website.

2. Talk to a Financial Advisor about a Roth Conversion

A Roth conversion is the rolling over of funds from a Traditional retirement account to a Roth account. There are many benefits of doing so.

For one, when you make a contribution to a Roth account, you pay taxes on the money at the time of contribution, so if you think your tax rate is lower now than it will be when you retire, a Roth account allows you to pay taxes at a lower rate. The potential earnings and withdrawals from a Roth IRA are tax-free.

You may also be able to override income restrictions attached to Roth accounts. While your income may restrict you from opening a Roth account, a conversion allows you to roll money over from another account. Keep in mind, however, that you will have to pay income taxes on any amount you convert. Depending on how much you’re converting, this can be a hefty bill. Discuss your options with a financial advisor before deciding on a conversion so you understand the full effects of your decision. At PAX Financial Group, our team of financial advisors can also help you determine how much you want to convert, whether it’s just a percentage of your Traditional account balance or the entire amount. There are no annual limits for a conversion, like there is for regular contributions.

If you do decide to go ahead with a Roth conversion, you’ll also want to talk to your current plan administrator to see whether you’re allowed to do a direct Roth IRA conversion. This option allows your administrator to send the designated funds directly from your existing IRA or 401(k) to your newly created Roth account.

A conversion can be a great option in terms of trying to catch up or get ahead with retirement savings, but it’s not right for everyone! Read our recent blog post: A 401(k)-to-Roth Conversion: When It Makes Sense, And When It Doesn’t.

3. Pay Off Debt

Paying down your mortgage, credit card debt or high-interest loans is another strategy that can help free up extra money for retirement – or free up extra money to put toward your retirement savings. Interest is basically wasted money, so the faster you can settle your debts, the less you’ll lose in interest and the more you can put toward your retirement.

There are different strategies to paying off debt. Read our recent blog post: Tips to Paying Off Debt Early – PAX Financial Group Answers Common Questions.

4. work longer

Working longer is another option. Maybe you stay in your current job a few more years, or maybe you take on a part-time job in a different field. Staying in the workforce longer gives you the opportunity to earn more before pivoting into retirement life and contribute to your employer-sponsored retirement plans longer – and take advantage of any employer match longer!

There can be drawbacks though to working later, especially if you’ve already started taking Social Security benefits. Read our recent blog post: Working in ‘Retirement’ – 4 Things to Consider.

5. Delay Social Security Benefits Until Later

The amount you receive in Social Security benefits depends on when you start taking them.

If eligible, you are able to start taking your Social Security benefits as early as age 62. However, you will receive less every month than if you had waited until your full retirement age, an age determined by the year you were born. If you wait to start collecting your Social Security benefits until after your full retirement age, up to age 70, the amount you receive every month will be higher.

At PAX Financial Group, we can help you explore different scenarios and what your options look like based on your specific situation.

6. Talk to a Financial Advisor about Your Risk Level and Alternative Investments

Many people assume they have to ramp up their investment strategy to make up for a late start to retirement planning. But this can be extremely dangerous.

Talk to your financial advisor about your risk tolerance and work out a saving and investing plan you can stick to – and not lose sleep over! Establish what you need to do to get to where you want to be. Reassess your retirement plans. Consider your options. While alternative investments and an aggressive investment strategy may work for you, it may not! You don’t want to lose the nest egg you do have saved for retirement by taking on too much, unnecessary risk late in the game.

This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note: Investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results.

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