Half of Boomers Have Less Than $50K for Retirement — It’s Not Too Late To Save More
Saving for retirement is no longer an option.
With the decline in private company pensions, the massive increase in the cost of living due to inflation and the future of Social Security in jeopardy, it’s more important than ever to build up a solid financial foundation.
But according to a recent survey by GOBankingRates, many Americans are not prepared for retirement. Retirement account balances are shockingly low and most people simply aren’t saving enough.
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We’ll reveal the data on how much Americans have saved for retirement and how to build up a respectable nest egg to supplement your retirement income. Plus we’ll get some tips from financial experts on how boomers can quickly ramp up retirement savings and better prepare for their golden years.
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How Much Do Americans Have Saved for Retirement?
According to a survey by GOBankingRates, over 60% of Americans have less than $50,000 saved for retirement. But if we drill down further into the data, here’s the breakdown of those who have less than $50,000 by age range:
Age 18 to 24 – 73%
Age 25 to 34 – 67%
Age 35 to 44 – 71%
Age 45 to 54 – 63%
Age 55 to 64 – 56%
Age 65 or older – 45%
It’s not surprising that younger generations have less saved for retirement, as retirement accounts have contribution limits and haven’t had much time to grow.
But it’s more concerning that over half of those approaching retirement don’t have much saved for retirement when it may only be a few years away.
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Some Boomers Will Never Retire
One of the questions asked in the survey was: “Do you think you will be able and prepared to retire at 65?” When focusing on those closest to retirement (age 55 to 64), respondents were not very confident.
Nearly 50% of boomers responded that they would not be able to retire by age 65. Nineteen percent of respondents claimed that while they can’t retire at age 65, they should be able to retire shortly afterward.
But 30% of respondents claimed that they will never be able to retire. And with high costs and account balances below $50,000, it’s no wonder many boomers have a bleak outlook on retirement.
How Boomers Can Accelerate Their Retirement Savings
In light of the survey results, we spoke with a licensed financial planner on ways boomers can grow their retirement savings. Since they are closer to retirement than anyone else, we wanted insight on how they can approach retirement savings and planning to set themselves up for the future.
Lower Expenses Before Retirement
While lowering expenses is always a good idea, doing so before entering retirement is especially important. Here are a few expert tips on ways to lower expenses so you can save more.
Pay off debt. “Paying off expensive debt is one of the most impactful ways to reduce your monthly budget,” said David Edmisten, CFP and founder of Next Phase Financial Planning. “Getting rid of credit card debt, student or business loans, car payments and potentially even paying off your home mortgage are effective ways to lower the most significant expenses in your budget.”
Cut out excess costs. “You can also review all other areas of spending to see what you can reduce or eliminate,” Edmisten said. “Typical candidates for reduction include online subscriptions, internet and cell phone plans, impulse purchases, travel costs, dining out, etc. Keep those items that allow you to enjoy your lifestyle, but you may be surprised how much you can save if you take a look.”
Max Out Your 401(k) Account
With all the money you save from making adjustments to your budget, you can funnel those funds toward tax-advantaged retirement accounts. This can save on taxes and grow your retirement balances at the same time.
“The last few years before retirement are a great time to make the most of tax-advantaged retirement accounts,” Edmisten said. “You should consider maxing out contributions to your employer retirement plans and IRAs. If you have access to a 401(k) or 403(b) retirement plan with your employer, you can contribute up to $23,000 for 2024. If you’re 50 years or over, you can also make an additional catch-up contribution of $7,500 for 2024.”
The catch-up contribution is particularly beneficial to boomers who qualify. This means you can contribute over $30,000 per year until you retire, massively boosting your account balance.
Max Out Your IRA Accounts (If Eligible)
Outside of workplace retirement accounts, IRAs offer a great tax-advantaged place to park retirement funds. While there are income limits for Roth IRA accounts and deductible Traditional IRAs, if you are eligible to contribute, it can help save on taxes and grow your retirement income.
“If your income falls into eligible ranges, you can consider making a maximum contribution of $7,000 to an IRA or Roth IRA, and a $1,000 catch-up contribution if you’re 50 or older,” Edmisten said.
Max Out Your Health Savings Account (If Eligible)
Healthcare costs can loom large in retirement, so saving ahead is always a good idea. Health Savings Accounts (HSAs) offer a tax-advantaged way to save for medical expenses, but can also be used for retirement income as well.
“An often-overlooked way to increase your retirement savings in a tax-smart way is to maximize your Health Savings Account,” Edmisten said. “Health Savings Accounts are available only to those who choose high-deductible health insurance plans (HDHPs). If you participate in an HDHP and you have access to an HSA, this can be a powerful vehicle for building tax-advantaged savings for retirement.”
The great thing about these accounts is that your contributions can be invested and those investments grow tax-free. And if you withdraw funds for qualifying medical expenses, those withdrawals are also tax-free. This triple tax advantage is why HSAs are a coveted account for retirement growth.
“Individuals can contribute up to $4,150 to an HSA for 2024 and up to $8,300 for a family plan,” Edmisten said. “If you’re 55 or older, you can make an extra ‘catch-up’ contribution of $1,000 per year and a spouse who is 55 or older can do the same if each of you [have] your own HSA account. You can also contribute to an HSA account regardless of your income.”
These catch-up contributions are a big deal for boomers, adding more funds into a tax-advantaged account that can be used in retirement. And while HSAs are designed to be used for healthcare expenses, after age 65, you can use the funds for anything and simply be taxed at your regular income tax rate.
“Keep in mind that withdrawals taken from an HSA for other expenses are subject to income tax and a 20% penalty if taken prior to age 65,” Edmisten said. “It’s important to plan carefully and follow the rules to get the most benefit from your HSA account.”
Add More to Your Bank and Brokerage Accounts
Once you’ve maxed out your tax-advantaged accounts, you can save and invest additional funds in a regular brokerage account. You can also stash cash in a high-yield savings account or money market to help pay for expenses once you finally quit your job.
“There’s no limit on how much you can contribute to a bank savings or taxable brokerage account (albeit no tax deductions, either), so if you have more money available to save, consider adding to these accounts,” Edmisten said. “Having 12 to 18 months of spending already in cash is a fantastic way to be ready to retire, as stock market changes won’t change your spending plans for your first year of retirement. Adding funds to your taxable investment accounts gives you more money to grow for your future.”
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This article originally appeared on GOBankingRates.com: Half of Boomers Have Less Than $50K for Retirement — It’s Not Too Late To Save More
