Assign a higher level percentage of your salary toward retirement is an effective way to grow your savings and improve your chances of financing your life after work.
But is this true for investors in their 50s? Can middle-aged people have a significant impact on their retirement prospects at the eleventh hour of their career?
To answer these questions, SmartAsset analyzed the numbers.
We looked at three examples of savers. They all have the same amount saved at age 50, but each makes a different decision about whether to increase their savings at that time.
What we found: It’s never too late to increase your retirement savings. (And if you’re looking for help planning your retirement, consider working with a Financial Advisor.)
For an overview of the data, read on.
Our analysis
SmartAsset analyzed three examples of retirement portfolios.
In each example, a 50-year-old retiree starts with $61,530, which is the median retirement account balance of people aged 45 to 54, according to Vanguard’s “How America is Saving 2022” Report.
All retirees invest pre-tax money in a diversified fund earning 5% and earn $83,812 before tax, the median household income for people aged 45 to 64, according to the year-long survey of the Census Bureau’s 2021 American community. For simplicity, their household income does not change over the last 15 years of their working lives.
As far as savings habits are concerned, their behaviors diverge.
Saver A is the least enthusiastic saver. He skims 3% of his household income of $83,812 and earns 3% employer correspondence. This equates to a monthly contribution of $419 (including employee and employer contributions). He does not change his percentage savings rate during the last 15 years of his working life.
Saver B decides to slowly increase his savings. He starts with a 3% contribution, plus a 3% contribution from the employer, then increases his savings by one percentage point each year until retirement. By the time he turns 65, he is devoting 17% of his income to retirement. His contributions start at $419 per month and end at $1,397 at age 65.
Saver C is a super-saver. He directs 20% of his household income to a retirement account starting at age 50 and earns a matching 3% from his employer. This is a monthly contribution of $1,606 for 15 years.
Run the Numbers
Saver A, the 3 percent, is the least aggressive saver. His monthly contribution of $419 swells his retirement account to $239,346 at age 65. It’s still over a quarter of a million dollars, but his peers have saved more.
Saver B, the slow but steady saver, sees his retirement account grow to $352,583 at age 65. That’s $113,237 more than Saver A saves, or about 30% more. This difference can help fund a stronger and longer retirement for saver B.
Saver C, our super saver, makes up for lost time. His account reached $555,063. That’s $200,000 more than Saver B’s socks and more than double Saver A’s nest egg. With more savings, Saver C is less likely to survive your retirement savings. A larger account can also improve his retirement lifestyle and even increase the chances that he can leave a legacy for his heirs.
5 ways to save more for retirement
The numbers show that it’s possible to make a significant difference to your retirement account, even if you don’t start saving seriously until you’re in your 50s.
But, of course, it’s easier to talk about saving more than to actually do so. Some strategies for getting started include these:
1. Think small. If increasing your retirement savings from 3% to 20% in a single year is daunting, start small like Saver B did. Even a one percentage point increase in your salary per year can have a significant impact. on your total savings over time.
2. Bank your tax refund. Small deals such as tax refunds can fill a retirement account and increase your savings percentage for the year.
3. Assign a percentage of your raise. The savers in this example never received a raise, but imagine the difference if they got one every year. Consider redirecting a percentage of any annual raise or bonus to your retirement savings accounts.
4. Secure your correspondence. Each of these retirees benefited from their employer’s 401(k) match. Not doing so is like leaving free money on the table. Make sure you are channeling enough into your account to claim a workplace match.
5. Focus on your strategy. When times get tough, it helps to remember your strategy and not make instinctive decisions. A Financial Advisor may be able to help you identify an investment and savings strategy that produces retirement income.
Conclusion
The sooner you can start saving for your retirement, the better. But if you start late, know that you can make a difference in your savings by increasing the amount you invest and staying consistent.
Retirement Planning Tips
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Planning for retirement can feel like solving a complicated puzzle, but you don’t have to go it alone. A financial advisor can help you put the right pieces together by assessing your needs and connecting you with the services that are right for you. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three financial advisors who serve your area, and you can interview your advisors at no cost to decide which one is best for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
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Social Security plays a vital role in the retirement plans of many. By delaying Social Security beyond your full retirement age, you can increase your benefit by up to 8% per year until age 70. Social Security Calculator can help you determine the best time to claim your benefits.
Questions about our study? Contact [email protected].
Photo credit: ©iStock.com/Yaroslav Astakhov
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