Retirement savings catch up: Steps to consider now

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Even if it feels like time is running short, you can still take steps to help stay on track for the retirement you want.

Key points

  • As retirement approaches, you can still take steps to help prepare for a more comfortable future
  • Take advantage of catch-up contributions and see how working even a little longer could make a huge difference
  • Consider delaying Social Security for larger payments, reassessing housing to reduce costs and realigning your portfolio
As you approach retirement, you may be concerned that your retirement nest egg is not as large as you'd planned. But no matter where you are in the retirement planning process or how much you've socked away, you may be able to do more to help prepare for a comfortable retirement. "It's never too late to build a nest egg," says Debra Greenberg, director, Retirement and Personal Wealth Solutions, Bank of America. Here are five steps to consider that can help get you closer to the comfortable retirement you desire.
It's never too late to build a nest egg.
— Debra Greenberg,
director, Retirement and Personal Wealth Solutions,
Bank of America

1. Put away a little more

Beginning in the calendar year when you turn age 50, you're allowed to make annual "catch-up contributions" to a 401(k) plan and IRA, in addition to the regular contribution limits for that year. If you have turned 50 and haven't yet taken advantage of this catch-up opportunity, you can start now.
Annual contribution limits
The maximum retirement contribution increases beginning the calendar year when you reach age 50. Make sure to take advantage of this higher limit.
Contribution limits for Traditional and Roth IRA
Traditional* and Roth IRA** 2019 2018
Contribution limit
if you are below age 50 and will not turn 50 during the year
$6,000 $5,500
Catch-up contribution limit
if you are age 50 or older***
$1,000 $1,000
Total contribution limit if you are age 50 or older*** $7,000 $6,500
Contribution deadline**** 4/15/20 4/15/19
Contribution limits for 401(k)
401(k) 2019 2018
Contribution limit
if you are below age 50 and will not turn 50 during the year
$19,000 $18,500
Catch-up contribution limit
if you are age 50 or older***
$6,000 $6,000
Total contribution limit if you are age 50 or older*** $25,000 $24,500
Contribution deadline 12/31/19 12/31/18
* Contributions to Traditional IRA accounts may be tax deductible. If you participate in an employer-sponsored retirement plan, the tax laws limit the deductibility of your contributions based on modified adjusted gross income (MAGI) ranges that are published annually and correspond to your federal tax filing status — if your MAGI is less than the lower limit, you are eligible for a full deduction for your contributions; if your MAGI is between the limits, you are eligible for a partial deduction; and if your MAGI is above the upper limit you are not eligible for a deduction. The Traditional IRA MAGI ranges are: $64,000-$74,000 in 2019 and $63,000-$73,000 in 2018 (single and head of household); and $103,000-$123,000 in 2019 and $101,000-$121,000 in 2018 (married filing jointly and qualified widow(er)). If you do not participate in an employer-sponsored retirement plan but your spouse does and your filing status is married filing jointly, the deductibility of your contributions is determined based on the MAGI range of $193,000-$203,000 in 2019 and $189,000-$199,000 in 2018.
Generally, if you are married filing separately, you are not entitled to a deduction for contributions to a Traditional IRA if your MAGI is $10,000 or more and you or your spouse participate in an employer-sponsored retirement plan. However, if you are married and file separately but do not live with your spouse at any time during the year, your maximum deduction is determined as if you were a single filer.
If neither you nor your spouse is covered by an employer retirement plan, the maximum deduction is either $6,000 or $7,000, depending on whether you are age 50 or older at any time during the year to which the contributions relate.
** Whether you are eligible to contribute to a Roth IRA is based on your MAGI. The tax laws limit the eligibility to contribute to a Roth IRA based on MAGI ranges that are published annually and correspond to your federal tax filing status — if your MAGI is less than the lower limit, you are eligible to contribute up to the annual contribution limit for the year; if your MAGI is between the limits, you are eligible to make a partial Roth IRA contribution; and if your MAGI is above the upper limit you are not eligible to contribute to a Roth IRA. The Roth IRA MAGI ranges are: $122,000-$137,000 in 2019 and $120,000-$135,000 in 2018 (single and head of household); and $193,000-$203,000 in 2019 and $189,000-$199,000 in 2018 (married filing jointly and qualified widow(er)).
Generally, if you are married filing separately, you are not entitled to contribute to a Roth IRA if your MAGI is $10,000 or more. However, if you are married and file separately but do not live with your spouse at any time during the year, your maximum deduction is determined as if you were a single filer.
*** You are treated as being age 50 or older if you will turn age 50 or older at any point during the calendar year to which the contributions relate.
**** You generally have until April 15th of each year to make IRA contributions for the previous year to which the contributions relate. If April 15th falls on a weekend or a holiday, the deadline is typically the next business day.
Contributing a little extra to your retirement investments each month could yield rewards later. For example, putting an additional $25 a week toward retirement — what you might save by having breakfast at home instead of grabbing something on the way to work — could, after 10 years, yield an additional $16,470 in your retirement pot. After 20 years, that sum could potentially grow to more than $46,000, as the chart below shows.Footnote 1 If you can't find the extra cash now, consider pledging to up your contribution if you receive a salary increase, bonus or tax refund.
If you invested an extra $25 a week
Imagine taking the money you spend on little splurges — a couple of take-out lunches or a few cups of coffee — and investing it in your retirement account. As shown below, a bit of sacrifice and reinvestment could potentially really add up over time.*
A bar chart illustrates how decreasing weekly expenses by $25 on little splurges like a couple of take-out lunches, or a few cups of coffee, and investing it instead in your retirement account, can really add up over time. A person can save $16,470 over ten years, $29,227 over fifteen years, $46,435 over twenty years, and $69,646 over twenty-five years.
* Assumes four weekly contributions per month at an annual rate of return of 6%, compounded monthly for the stated number of years. Prices for goods assume $1.25/cup of brewed coffee, $10/lunch eaten out, $1.25/bottle of water.
Also, if you have a mortgage, consider refinancing to find additional dollars that you can invest. Rates are still low, so even relatively recent mortgages may benefit. But weigh your closing costs against how long you plan to stay in your home and other factors to determine if refinancing is a smart move for you.

2. Work a little longer

Postponing retirement can make a lot of sense. "Most of us are healthier at age 65 than the average retiree of our parents' generation," Greenberg says. Working a year or two longer can not only boost your savings considerably but also give your investments more time to potentially grow before you begin drawing on them for income. What's more, you won't have to stretch your retirement assets over as many years.
Staying in your current job may not be the only option when it comes to working longer. Consider whether you'd like to work closer to home, for example, or in a field you're more passionate about. But keep in mind that it could be risky to rely on working as your sole way of boosting retirement income. Indeed, according to a 2018 retirement confidence survey by the Employee Benefit Research Institute, 68% of workers say they expect that continuing to work will provide them with income in retirement, but only 26% of current retirees are actually working for pay. That suggests that outside factors may get in the way.

3. Defer taking Social Security

You can opt to start taking reduced benefits as early as age 62. But for each year you delay, your monthly benefits grow by about 8%, until age 70, when you earn the maximum. The additional income can add up quickly. In fact, delaying your Social Security retirement benefits until age 70 instead of collecting at age 62 increases your lifetime monthly benefit by 76%. For a couple with average life expectancies, that could mean an increase in lifetime benefits of more than $150,000.
Greenberg recommends that you consider tapping into other assets to cover expenses, or spend less, rather than drawing Social Security too early.

4. Rethink your housing situation

If you no longer need the space you once did, consider downsizing. Reduced living costs — including transportation as well as housing and maintenance expenses — could free up cash to put into savings, and you could invest any profits from the sale of your home. You might even think about relocating to a neighboring town with lower property tax rates, or to one of the seven states with no personal income tax. (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming currently have no personal income tax. New Hampshire and Tennessee currently have limited personal income tax, and tax only interest and dividend income exceeding certain amounts.)
If you plan to stay in the same place through your retirement years, consider factors such as your future ability to climb stairs and whether you'll have reasonable access to stores and doctors' offices when you no longer want to drive.

5. Realign your portfolio

Your asset allocationFootnote 2 should typically become more conservative as you approach retirement. But consider continuing to hold some stocks or stock funds for potential asset growth to help offset inflation, since you could spend 20 to 30 years in retirement. Regardless of whether the market is up or down, stocks may be found to generate the highest return of all investment classes in the long run.Footnote 3 "The main priority," Greenberg says, "is to have a disciplined approach to investing."
Next steps

Footnote 1 This hypothetical illustration assumes a 6% annual effective rate of return and was not adjusted for inflation. Had a different rate been applied, the results would have been different. Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Investment return and principal value will fluctuate, and when redeemed the investments may be worth more or less than their original cost. Taxes may be due upon withdrawal. If you take a withdrawal prior to age 59½, you may also be subject to a 10% additional tax.

Footnote 2 Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

Footnote 3 Past performance is no guarantee of future results.

Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
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