If you have reached the grand old age of 50, you’ve probably had a moment of clarity about your financial future. Perhaps you’ve taken stock of your retirement nest egg and found it a bit wanting.
The recent stock market plunge and fears about the coronavirus pandemic also may leave you more worried about funding your retirement than ever before.
But don’t panic. There is plenty of time to build a kitty for your golden years that will grow into a few hundred thousand dollars of savings — or even more.
Following are six ways to boost your savings efforts so you can retire with a greater sense of security.
Take advantage of the retirement catch-up provision
Uncle Sam wants to add a little extra rocket fuel to your retirement savings efforts. If you are 50 or older, you can take advantage of “catch-up” provisions in the tax code that allow you to contribute more to your retirement accounts.
For example, if you have a 401(k) plan, you can contribute an extra $6,500 per year once you turn 50. If you have an IRA — Roth or traditional — you can add an extra $1,000 to your contribution each year.
The amount the government allows you to contribute to these retirement vehicles generally increases as the years roll on. These bigger contribution limits can make a huge difference to the size of your nest egg over time.
Max out on your employer match
We’ve already talked about the huge benefit of contributing the maximum to your 401(k) plan. But even if you can’t save that much, at least make sure you are stuffing enough into your 401(k) to get the employer match.
You’ve probably heard it a million times, but this really is free money. Typically, companies will match a percentage of your salary — perhaps 2.5% — at something like 50 cents on the dollar. So, if you make $50,000, that’s an extra $625 toward retirement each year that you get for doing nothing but saving a bit more.
And many companies offer matches that are even more generous than the one outlined above.
Sign up for a health savings account
The health savings account — more commonly called an “HSA” — might just be the best hidden secret in the entire tax code. As we have explained previously, an HSA is triple tax-advantaged:
- Contributions can be deducted from your taxes for the tax year during which the contributions are made.
- Any gains on your contributions compound tax-free.
- Withdrawals are tax-free when used to pay for qualifying health care expenses.
In other words, you will never owe taxes on money that goes through an HSA, provided that you follow the IRS rules for using the money to pay for qualified health expenses.
Even better, you can again make a catch-up contribution. However, this time you must be 55 or older to take advantage of this catch-up tool, which is capped at $1,000 for 2020.
For more on HSAs, check out “3 Great Reasons to Set Up a Health Savings Account.”
Open a self-employed 401(k)
We live in the age of the “gig economy,” where millions of workers earn a living as freelancers or contractors. Millions of other workers own small businesses, many of which are one-person shops.
Fortunately, working on your own does not preclude you from opening a 401(k) account. Entrepreneurs and solo workers can open a self-employed 401(k) account, more commonly known as a “solo 401(k).”
These accounts allow you to add massive amounts of money into your retirement savings every year. For example, you can make the same $19,500 in employee salary deferral contributions as any other employee. But in addition, you can make a profit-sharing contribution of up to 25% of compensation, to a maximum of $57,000 in 2020.
If you are self-employed, the solo 401(k) might be the single best way to supersize your nest egg.
Become a landlord
Investing in real estate long has been a staple strategy for people of modest means to retire in relative comfort. One of the best ways to grow your income is to purchase a rental home or duplex and let your tenants’ rent checks pay down the mortgage over a number of years.
Yes, owning rental properties is fraught with risk. You have to screen tenants carefully to make sure you don’t end up with a trouble-maker. And even if you do all of your due diligence, things can still go wrong.
But life as a landlord is one way to make money without actually having to work for it day in and day out.
And here is a bonus tip for people who really want to pad their bottom line: When you sell a rental, you have to pay capital gains tax on the profit — unless you have lived in the property for two of the five years prior to selling the unit.
So, if you can stomach it, move into the property for a couple of years before selling. This could save you tens of thousands of dollars in taxes.
Get a side gig
By the time you are 50, you’ve accumulated a lot of wisdom and smarts, both personally and professionally. While the Big 5-0 might be a bit too early to retire, it’s not too early to begin planning your golden years.
For starters, check out “20 Ways Retirees Can Bring in Extra Money in 2020.” It will give you the lowdown on some of the best ways to bring in income once you walk away from your full-time gig.
For more tips, check out the following:
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