Wealth Management Since 1971

Retirement Catch-Up

Got a late start planning for retirement? Don't give up hope. There are ways to catch-up.
calendar showing words are you ready for tomorrow

At Linscomb & Williams, we believe it’s never too early to start planning for the future. Starting early has a bevy of benefits, such as compounding interest and an increased number of years to accumulate needed savings. 

However, putting money aside for a long-term goal like retirement, which can feel like a lifetime away when you’re in your early-20s, can be difficult. So many short-term goals take priority (starting a family, buying a home, etc.). As a result, we often talk to people who have procrastinated. 

If you got a late start saving for retirement, there are ways to “catch-up.” The team at Linscomb & Williams created this guide to highlight some of the strategies we discuss with clients who find themselves in this situation. The key is starting now! 

If you’re ready to discuss your situation in more detail, don’t put it off any longer. Schedule a no-obligation conversation with the Linscomb & Williams team to see how we can help.

Chapter 1

Retirement Account Contributions

There are 3 common ways to increase your regular retirement contributions. 

First off, ask yourself, are you contributing the maximum amount you’re allowed? The annual contribution limit for 401(k), 457 and 403(b) accounts in 2021 is $19,500 if you’re under the age of 50. The annual contribution limit for an IRA in 2021 if you’re under the age of 50 is $6,000. This might not sound like much, but any extra money put away now can help you in the future. 

Further, take advantage of any match your employer may offer. If an employer offers to match 100 percent of your contributions up to 3 percent of your salary, this is essentially free money that you can’t afford to pass up, especially when you got a late start to saving. If possible, increase your contributions so you take full advantage of this program.

Finally, review the type of retirement account you have. The major difference between a Traditional IRA, for example, and a Roth IRA is how they’re taxed. A Traditional IRA offers tax benefits in the year you make your contribution. A Roth IRA, on the other hand, works in reverse, affording you the option to make contributions with after-tax money, so that when you withdraw the funds in retirement, you don’t have to worry about taxes, because they’ve already been paid. That means no tax on any of the earnings that have accumulated on your contributions, perhaps made over multiple decades!

A Roth conversion allows you to transfer the money built up in a Traditional IRA to a Roth IRA. This can create a hefty tax bill in the year of conversion, but it is one strategy that some retirees find helpful early on in retirement, especially if they are anticipating a few years of relatively low income after their paycheck goes away. Talk to a financial advisor before deciding to do a Roth conversion so you fully understand the pros and cons. 

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Chapter 2

Catch-Up Contributions

When it comes to retirement contributions, the IRS increases your annual contribution limits once you turn age 50. While these catch-up contributions are offered to all accountholders over 50, they can be especially beneficial to someone who started saving late. 

For example, the retirement contribution limit for a Traditional or Roth IRA for someone under the age of 50 is $6,000. Once you turn 50, that limit increases to $7,000, allowing you to put away an extra $1,000 yearly. 

The contribution limit to a standard 401(k) or 403(b) increases from $19,500 (before age 50) to $26,000 (age 50 and older). That’s an extra $6,500 that you can put away for retirement every year. 

Those extra contributions can make a big difference! 

If you have questions about how your retirement plan works, schedule a conversation with the Linscomb & Williams team. We’re here to help! 

Read our recent blog post:

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Chapter 3

Eliminating Debt

Eliminating debt is another way to help you increase your retirement income. How? The less money you put toward debt, the more you have to put toward your retirement. 

Instead of paying 6 percent interest on a particular debt, you can earn 6 percent on your retirement contributions. If that money is matched by an employer program, that’s even more money that is working for your future. 

Even if you’re not able to become completely debt-free, eliminating high-interest credit card debt, student loan debt, even your mortgage can help stretch your budget in your Golden Years. (Remember though, not all debt is equal. Some indebtedness, like fixed interest rate mortgage debt, especially at today’s low rates, may be debt that you should not prepay.)

Read our recent blog post:

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Chapter 4

Risk Tolerance

Another dimension to consider in your retirement plan when you got a late start is your risk level. 

Risk tolerance is important to any retirement plan – how much volatility can you stand before you start to lose sleep at night? However, it’s just as important to understand your risk capacity, the amount of risk you “need” to take in order to reach your financial goals. If your retirement plans require more than your portfolio allows, a financial advisor can help you make necessary adjustments.  

You should never feel uncomfortable about your investments and the amount of risk you’re taking, so make sure to discuss your situation in detail with a financial advisor you trust. Full evaluation of whether you can actually “live” with a given risk level, often involves sophisticated financial modeling to help you make these judgments. Increasing your risk, while helpful, may not be the best course of action for you.

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Chapter 5

Social Security

The Social Security Administration also provides strategies that can help you increase the amount of money you have in retirement. 

While anyone who’s eligible to receive Social Security benefits can start taking them at age 62, holding off for a few years can significantly impact the amount of your monthly benefit. 

For example, if your standard monthly benefit is $2,000 and your full retirement age is 67, if you started taking your benefits early at age 62, the amount you’d receive would be less ($1,500). If you waited until age 67, you’d receive the full $2,000 a month. If you delay receiving your benefits even longer, up to age 70, the amount you receive increases by 8 percent every year you wait after your full retirement age. In this example, if you waited until age 70, your monthly checks would be $2,640. 

The decision of when to take your Social Security benefits depends on more than just the final dollar amount, though. Before making a decision, talk with a financial advisor about your age, family make-up, expected longevity and your other retirement accounts, because this is a decision that, in most cases, is permanent. No two retirements plans are the same. Therefore, there is no magic formula that works for everyone. A financial advisor can help you determine your personal break-even age and look at Social Security strategies you may not have considered on your own, such as staggering benefits with your spouse. 

Read our recent blog post:

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Chapter 6

Your Options

If you got a late start to your retirement planning, consider your options:

  • Can you work longer? Sometimes, this can just mean a year or two, but it can produce a powerful difference.
  • Can you trim your budget? Minor reductions of even 5 to 10 percent can be meaningful. 
  • Can you adjust your day-to-day plans? Part-time work can make a significant difference.
  • Will you relocate? Living in a lower cost-of-living area can be impactful.
  • Do you have assets you can capitalize on, such as a home or a second home? Monetizing assets that do not currently produce income can be a game-changer.

Talk to a financial advisor about your options and see how different scenarios will affect you. Some may not provide as much help as you may think. Others may help more than you thought!

Read our recent blog post:

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Chapter 7

Estate Planning

Estate planning is also important to address when you got a late start to your retirement planning. 

Could your assets generate more income now than they would for your heirs? Talk to a financial advisor about the equity in your home or rental property. Next generation wealth management is important, but your future is likely the number one priority. 

Another issue we see when it comes to estate planning and late retirement planning is not having an estate plan. This can be devastating if something was to happen to you. Review your beneficiaries, and at the bare minimum, create a will and establish powers of attorney. No one wants to lose their hard-earned assets to taxes and probate fees. Or worse, having your assets end up going to unintended beneficiaries.

Read our recent blog post:

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Don’t put the conversation off any longer. Schedule a conversation with the Linscomb & Williams team today.