When you're in your 50s and 60s, traditional retirement age is just around the corner — and preparing for retirement is probably a priority. While retirement can be an enjoyable thought, it can also be a stressful one — because you are changing the way you generate income and savings.
Preparing for retirement at this stage in your life should focus on taking steps to preserve your savings and helping to ensure that you'll have enough money to support yourself.
Determine Your Retirement Budget
Now that you're nearing retirement, you can start to imagine what your lifestyle will look like. To see whether you are on track, consider putting together a rough estimate of your expected retirement budget. Think about how much you might spend per month on mortgage or rent, utilities, food, insurance, travel, entertainment and other expenses. Also, be sure to consider unexpected expenses and emergencies that could come up in the future. Now, how does this compare with the amount you have saved for retirement?
A retirement income calculator could help estimate how much money you could spend per month based on your total savings. Are you close to your approximate monthly budget? If you find out you're falling short, you still have time to save more and adjust your plan.
After saving money throughout your entire career, you might consider how you could protect those savings. However, if you're nervous about finding the optimal portfolio balance, you could ask your registered representative to assist with retirement planning.
Maximize Your Savings
The last decade of your career is an important time to consider maximizing your savings. Fortunately, once you turn 50, you can make larger contributions to your retirement plans. If you have a traditional or Roth individual retirement account (IRA), you can contribute a total of $7,000 in 2020 if you're 50 or older — it's called a catch-up contribution, which is an additional $1,000 that younger income earners cannot contribute to their IRAs, according to the Internal Revenue Service (IRS).
If you have a 401(k) at work, the IRS allows you to contribute up to a maximum of $26,000 in 2020 if you're 50 or older — $6,500 per year more than the amount those under 50 can contribute. So consider taking advantage of these higher contribution levels to help build your savings while you still can.
Consider a Later Retirement Date
Is it possible to delay your ideal retirement date? Even delaying by one year could make a difference for your retirement preparations. First, an extra year of work means one less year where you need to dip into your savings. It also helps give you more time to save money and grow your savings.
Finally, you can delay taking Social Security. Every year you delay Social Security increases your benefits by 8 percent until the payments max out when you turn 70, according to the Social Security Administration. All these factors combine to help improve your retirement finances.
Another option is to redefine retirement with an "encore" career (think of it as your second act) or even part-time work. While you might not have all the benefits or income during your preretirement career, you may want to continue to work and earn some income — or stay active and pursue a hobby or passion.
By considering these steps now, you can help to put — and keep — your retirement strategy on track as you move toward retirement.