Late Start on Retirement Savings? How to Try and Catch Up in Your 50s

As you enter your 50s, the urgency of retirement savings becomes palpable. For those who find themselves behind on their retirement savings, the path ahead may seem daunting. With the average Gen X household boasting a mere $40,000 in retirement savings, according to the National Institute on Retirement Security, the need for prompt action becomes even more apparent in your 50s. However, despite the challenges, there are strategies to catch up on your retirement savings. From maximizing savings opportunities to strategic investment decisions, there are several things you can still do to bolster your financial stability as you approach retirement.

Seeking guidance from a financial advisor can provide invaluable insights and a tailored approach to building a nest egg efficiently, even in your 50s. This article will explore actionable steps on how to retire at 50 with adequate savings and help you mitigate the shortfall to pave the way for a more secure retirement.

Below are 5 steps that can help catch up on retirement savings in your 50s:

Step 1: Max out your 401(k) and IRAs

If you are 50 and have no retirement savings, one crucial strategy is to maximize contributions to your 401(k) and Individual Retirement Accounts (IRAs). This can help you enjoy the benefits of catch-up contributions available to individuals aged 50 and older. Your 401(k) is a powerful savings tool provided by your employer. It offers tax-deferred growth and, in many cases, matching employer contributions. Additionally, IRAs are retirement accounts you can open and fund on your own. They can be opened at a bank, credit union, broker, or insurance company. IRAs offer similar tax benefits as 401(k)s, high contribution limits for those aged 50 and older, and help accelerate your savings growth. Individuals nearing retirement age should prioritize funding these accounts to the maximum extent possible.

Once you reach the age of 50, catch-up contributions allow you to turbocharge your retirement savings. For the year 2024, individuals aged 50 and above can contribute an extra $7,500 to their 401(k) accounts in addition to the standard contribution limit. This brings the total allowable contribution to $30,500, which can be a significant boost to enhance your retirement nest egg substantially. Similarly, catch-up contributions for IRAs enable individuals aged 50 and older to save an additional $1,000 beyond the standard contribution limit, totaling $8,000 for the year 2024. This means that both you and your spouse, if applicable, can take advantage of these enhanced contribution limits. For households with both partners working and earning, this can provide a valuable opportunity to accelerate joint retirement savings. Contributions to tax-deferred retirement accounts like 401(k)s and IRAs offer the advantage of tax-deferred growth. This means that your investments can grow without being taxed annually, allowing your retirement savings to compound more rapidly over time. By maximizing your contributions and taking advantage of catch-up provisions, you can harness the power of tax-deferred growth to build a substantial nest egg for your retirement years.

Apart from tax benefits, one of the key advantages of contributing to a 401(k) is employer matching. Many employers offer to match a certain percentage of your contributions. This effectively provides you with free money towards your retirement savings. By maximizing your contributions to your 401(k), you not only take full advantage of the tax benefits but also maximize the potential for employer matching, thereby increasing your retirement savings exponentially. It is a win-win situation where the more you contribute, the more you earn in matched funds, further enhancing your financial security in retirement.

Step 2: Get rid of debt

If you have no retirement savings at 50, one of the reasons for this can be a poor relationship with money. A significant obstacle that often impedes progress in retirement savings is lingering debt. Addressing financial obligations, such as the weight of a mortgage or the burden of high-interest credit card debt, is essential for catching up on retirement savings and securing your financial future. According to data from the first quarter of 2023, America’s 50-somethings were collectively carrying over $3 trillion in consumer debt, with mortgages comprising a substantial portion of this burden. Surprisingly, another study revealed that nearly half of homeowners between the ages of 60 and 70 still have a mortgage when they retire. While paying off your mortgage may seem like a daunting task, it is a crucial step towards financial freedom in retirement. Without the burden of monthly mortgage payments, you can redirect those funds towards savings or investment opportunities, such as the stock market. While it may take time to achieve mortgage-free status, the long-term benefits far outweigh the initial challenges.

It is important to note that carrying a mortgage into retirement is not necessarily detrimental, especially if it represents your lowest-interest debt. While mortgages may constitute a significant portion of debt for individuals in their 50s, it helps more to address other types of debt that can derail your retirement savings plans. High-interest credit card debt, in particular, poses a significant threat to financial stability. As of May 2023, the average interest rate on credit card debt exceeded 22%, making it a formidable obstacle to overcome. Paying off high-interest credit card debt should be a top priority for individuals looking to catch up on retirement savings. The return on investment from eliminating this debt far exceeds any potential gains from other investment avenues. Allocating resources towards debt repayment enables you not only to free up financial resources for savings but also to alleviate the burden of interest payments that can erode your financial health over time.

Effectively tackling debt requires a strategic approach tailored to your individual financial circumstances. You must assess your existing debt obligations and create a comprehensive repayment plan that prioritizes high-interest debt while maintaining essential financial commitments. Review your monthly expenses and pick areas where you can cut back to allot more funds towards debt repayment. Redirecting discretionary spending towards debt reduction can yield significant progress over time. You can also consolidate high-interest debt into a lower-interest loan or use balance transfers to streamline your repayment efforts and reduce overall interest costs. Additionally, you can consider consulting with a financial advisor or credit counselor to explore debt management strategies tailored to your unique situation. They can provide personalized advice and guidance to help you navigate the path towards financial freedom.

Need a financial advisor? Compare vetted advisors matched to your specific requirements.

Choosing the right financial advisor is daunting, especially when there are thousands of financial advisors near you. We make it easy by matching you to vetted advisors that meet your unique needs. Matched advisors are all registered with FINRA/SEC. Click to compare vetted advisors now.

Step 3: Prepare for healthcare costs

When saving for retirement at 50, the importance of preparing for unexpected medical costs becomes increasingly apparent. With age comes a heightened risk of health-related expenses, making it essential to fortify your financial defenses against potential healthcare challenges in retirement. One effective strategy for safeguarding your retirement savings is to create a Health Savings Account (HSA). An HSA is a versatile financial tool that offers significant tax advantages and opportunities for long-term wealth accumulation. HSAs offer three major tax benefits that make them an attractive option for bolstering your retirement savings.

1. Contributions to an HSA are tax-deductible. So, they reduce your taxable income for the year and provide immediate tax savings.
2. Funds held within an HSA can be invested and grow tax-free. This allows your savings to accumulate and compound over time without incurring annual taxes on investment gains.
3. Withdrawals from an HSA are tax-free if used for qualified medical expenses. This provides you with a valuable source of funds to cover healthcare costs in retirement.

In 2024, individuals can contribute up to $4,150 to an HSA, while families can contribute up to $8,300. By maximizing your contributions to an HSA, you can take advantage of the tax benefits and accumulate savings to cover both current and future healthcare expenses.

In addition to serving as a dedicated health fund, HSAs can also function as a supplementary retirement savings vehicle. Funds held within an HSA can be invested in different investment vehicles, such as stocks, bonds, or mutual funds, allowing your savings to grow over time. By strategically investing your HSA funds, you can potentially generate higher returns and build a more substantial retirement portfolio. Individuals aged 55 and older are eligible to make catch-up contributions to an HSA, allowing them to contribute an additional $1,000 per year. This provision provides older savers with an opportunity to accelerate their retirement savings and bridge any gaps in their financial preparedness. While HSAs are primarily intended for medical expenses, funds can be withdrawn for any reason after age 65 without penalty, although withdrawals not used for qualified medical expenses will be subject to ordinary income tax. This flexibility allows retirees to access their HSA funds to cover non-medical expenses in retirement and provides additional financial security and flexibility. HSAs can also help facilitate the transition to Medicare by covering health expenses, including Consolidated Omnibus Budget Reconciliation Act (COBRA) premiums or Medicare Part A premiums for individuals who retire before age 65. However, once enrolled in Medicare, individuals cannot make further contributions to their HSA.

Whether used to cover medical expenses or supplement retirement savings, HSAs offer a versatile and powerful tool for individuals seeking to catch up on retirement savings and secure their financial future. So, if you are planning to start saving for retirement at 50, an HSA should be one of the first options to consider.

Step 4: Establishing financial boundaries with adult children

The financial responsibilities associated with supporting adult children can pose a significant obstacle to achieving retirement readiness. To effectively catch up on retirement savings, it is essential to set limits and establish financial boundaries with adult children. This can ensure that their financial independence does not compromise their long-term financial security. Elevated inflation rates and the burden of student loan debt have created a challenging economic landscape for younger adults, making it increasingly difficult for them to achieve financial independence. As a result, many adult children may rely on financial support from their parents well into their 20s and beyond. While providing assistance to children is natural and often necessary, it is crucial to strike a balance between supporting their needs and safeguarding your own financial future.

One effective strategy for managing financial support for adult children is to establish clear boundaries and expectations regarding their financial responsibilities. Consider implementing some measures to set limits and foster financial independence. Set boundaries for how long adult children will remain on the family cell phone plan or auto insurance policy. While providing coverage during the transition to financial independence is reasonable, it is essential to establish a timeline for when they will assume responsibility for these expenses. If adult children continue to live at home, you can establish guidelines for when they will begin contributing to household expenses, such as rent, groceries, or utilities. It helps to encourage open communication about financial expectations and work together to develop a plan that promotes independence while ensuring financial stability for both parties.

Parents must also support adult children in developing financial literacy and independence by providing guidance on budgeting, saving, and managing debt. You can empower them to take control of their financial future and make informed decisions that align with their long-term goals. Effective communication is essential in navigating the delicate balance between supporting adult children and prioritizing retirement savings. Have open and honest conversations with your children about financial expectations and the importance of setting limits to ensure the financial well-being of the entire family.

If navigating financial boundaries with adult children proves challenging, you can also consider seeking advice from a financial advisor or counselor. A professional can provide objective guidance and help facilitate productive discussions with your children about financial responsibility and independence.

Step 5: Hire a financial advisor

Hiring a financial advisor can be a prudent choice if you plan to start saving for retirement at 50. One of the first steps a financial advisor will take is to assess your current financial situation comprehensively. This includes evaluating your assets, liabilities, income, expenses, and existing retirement savings accounts. By gaining a clear understanding of your financial landscape, the financial advisor can tailor strategies to address any gaps and optimize your retirement savings plan. Based on your financial assessment, a financial advisor will work with you to establish realistic retirement savings goals that align with your lifestyle preferences and future aspirations. Whether you aim to retire by a certain age, maintain a particular standard of living, or achieve specific financial milestones, the financial advisor can help you set achievable objectives and develop a roadmap to reach them.

With your goals in mind, a financial advisor will craft a customized retirement savings strategy designed to maximize your savings potential and mitigate risks. This may involve optimizing contributions to tax-advantaged retirement accounts, diversifying investments to manage risk, and implementing strategies to minimize taxes and fees. A financial advisor can help you select the right investment options, considering factors such as risk tolerance, time horizon, and investment objectives. The financial advisor can recommend diversified strategies tailored to your individual needs, such as investing in stocks, bonds, mutual funds, or other investment vehicles. Retirement planning involves not only maximizing savings but also managing potential risks that could jeopardize your financial security in retirement. From market volatility and inflation to healthcare costs and longevity risk, a financial advisor can help you identify and mitigate these risks through proactive planning and strategic decision-making.

One of the most significant benefits of working with a financial advisor is the access to objective advice and guidance tailored to your unique needs. Unlike relying solely on generic advice or self-directed strategies, a financial advisor offers personalized recommendations based on your specific financial goals and circumstances, helping you make informed decisions that align with your best interests.

To conclude

While catching up on retirement savings in your 50s may seem challenging, it is certainly achievable with strategic planning and disciplined action. Seeking guidance from a financial advisor can provide invaluable support in navigating the complexities of retirement planning and optimizing savings strategies. Additionally, implementing small yet impactful steps such as cutting back on expenses, increasing savings, limiting debt, and maintaining a rational approach to financial decisions can contribute significantly to closing the gap in retirement savings. By taking proactive measures and staying committed to your long-term financial goals, you can plan for a more secure retirement.

Use WiserAdvisor’s free advisor match service to match with vetted financial advisors who can help create a personalized plan to help you catch up on retirement savings in your 50s. Answer a few simple questions based on your financial needs, and the match tool can help connect you with 1 to 3 financial advisors who are best suited to help you.