Great news for all you retirement savers out there, as CKS Summit Group previously reported the IRS says you will be able to contribute more to your retirement accounts in 2019. But does that doesn’t necessarily mean you’re set for your golden years.
It’s always encouraging to learn of positive movement on the savings front when it comes to retirement. The average 401(k) balance reached an all-time high of $106,500 this past quarter, while the average IRA balance increased to $111,000. Larger retirement contributions can mean lower tax bills. Not to mention more income in retirement. But while these numbers are pleasing to the eye, they’re also not as reassuring as you might think.
While these average increases are a positive thing, they are just that – averages. A 35 year old with $100k in 401(k) or IRAs is a great position to be in, but what about those rapidly approaching retirement? Not so peachy. In fact you’re nowhere near the minimum $1 Million retirement goal recommended for a comfortable retirement. Fortunately, you have some options to work with.
Firstly, you can start taking advantage of catch-up contributions in your IRA or 401(k). Starting in 2019, if you’re 50+, you can set aside up to $7,000 annually in the former and $25,000 in the latter. Max out an IRA at that rate for 7 years, and you’ll boost your savings by about $57,000 if your investments generate a relatively conservative 5% average annual return during that time. Meanwhile, if you max out a 401(k) under those same circumstances, you’ll add over $203,000 to your savings!
Secondly, if you reach your late 50s or 60s with limited savings, extending your career is another option. Delaying retirement, and working just another 3 to 6 months has the same impact on the retirement standard of living as saving an additional one-percentage point of labor earnings for 30 years, according to John Shoven, an economics professor at Stanford University.
Finally, you might consider other options to compensate for an income shortfall like working part-time, renting out part of your home or downsizing. It doesn’t really matter what you do as long as you recognize a need to supplement your income.
Help is Here
While it’s encouraging to hear Americans are accumulating more than ever before in their IRAs and 401(k)s, if you’re behind on your retirement income savings, you need to take action – and the sooner the better.
If it’s difficult to estimate future costs, talk to a financial advisor at CKS Summit Group about your overall goals. We design custom portfolios to protect your money during uncertainty and perform during prosperity.