Retirement: Moves to Get Your Retirement on Track

Retirement challenges for today’s younger baby boomers, now in their mid-50s, are greater than those of the oldest boomers, now entering their 70s.

Younger boomers are less likely to have traditional pensions, they’ve paid more for their children’s college education, and they’ve benefited less from home appreciation, says Mary Beth Franklin, a contributing editor at InvestmentNews.

If you’re among this age group, here are ways to overcome these hurdles so you can still retire when you want:

Save More

In 2018, you can contribute $18,500 on a pretax basis to a 401(k), plus another $6,000 if you’re 50 or older. As long as you turn 50 anytime this year, you can start making those catch-up contributions now.

This money will be taxed when you withdraw it in retirement. Because of this, a tax-deferred account may be depleted 25 percent to 35 percent faster in retirement than a taxable account, says Jennifer Davis, a CFP in Rockville, Md. She suggests also stashing money in a Roth IRA, which offers tax-free withdrawals in retirement, or in an after-tax investment account. This will give you flexibility to draw from different accounts to minimize taxes later.

Trim Expenses

To free up more money for savings, you may have to reduce expenses by, say, eating out less, cutting the cable cord or replacing cars less often. If you need to make bigger cuts, consider downsizing — perhaps to a condo closer to where you work.

After their financial planner told Denise and Mike Sikora to save more, they sold their house in New Jersey and downsized to a nearby co-op, investing their home-sale profits and slashing their high New Jersey property taxes. A year later, they sold the co-op and bought a house in an even less-expensive area — a retirement community in central Florida.

The move to Florida saved them money in other ways. Florida has no state income tax, so it doesn’t claim part of their retirement income and Social Security benefits. The Sikoras’ property taxes are now about one-fifth what the couple paid on their New Jersey house.

Work Longer

Staying on the job an extra couple of years can make a huge difference to retirement savings. You can continue to make contributions to retirement accounts, you’ll be able to delay Social Security and earn a bigger benefit, and you’ll have fewer years of retirement to fund.

Even a part-time job paying, say, $10,000 a year can be a big help. It might not sound like much, but to generate an extra $10,000 a year from your portfolio using the 4 percent withdrawal rule, you would need another $250,000 in savings, says Bill Hart, a CFP in Jacksonville, Fla.

Eileen Ambrose is a senior editor and Kimberly Lankford is a contributing editor to Kiplinger’s Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com. And for more on this and similar money topics, visit Kiplinger.com.

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