Each child reduces the household wealth of Americans between the ages of 30 and 59 by about 3% or 4%, according to data from the Center for Retirement Research at Boston College.
After decades devoted to rearing children, it happens: parents realize that they’ve neglected their own retirement savings. Once the nest empties out, says USA Today, it’s time to refocus on building up savings accounts. How do you do it? The answers are in the article “5 ways empty nesters can boost their savings and turbocharge their 401(k)s.”
Here’s a five-step plan for making this happen.
Up the savings side. Once you’re not spending cash on your kids for clothes, college funds, cars and car insurance, that cash can move into retirement savings. The maximum for a 401(k) in 2019 is $19,000, and if you are over age 50, you can add $6,000 as a “catch-up” contribution. For annual IRA contributions, the limit is $5,000 with a catch-up of $1,000. Increase your paycheck deductions to the percentage, that will get you to the IRS limits. Put savings first.
If there’s a match, don’t miss it. Lucky enough to work for a company that matches all or part of your retirement savings? Do whatever you can to take full advantage of that free money. The most common company match is 50 cents per dollar on 6% of pay, according to Vanguard Group, which says that 70% of 401(k) plans had this match in place in 2017. Let’s say you earn $75,000 and save 6% of your pay. The company would give you $2,250, which means you’d be boosting your savings to $6,750.
Max out savings. The more money that is saved, the faster the nest egg grows. A married couple that socks away a combined $50,000 in pretax dollars every year in their 401(k)s, can find themselves with an additional $250,000 in five years. That’s not counting company matches or any investment growth.
Catch-up as fast as you can. Over 50? The IRS promotes savings by allowing catch-up contributions. An additional $6,000 is allowed in a 401(k). Parents who were paying for summer sleep away camp or riding lessons, can move those dollars into their own retirement accounts.
Control spending. The natural inclination when cash flow loosens up, is to spend more. Many people decide to live it up during these years, feeling like they deserve to enjoy themselves after dedicating so many years to their children. There’s a balance that needs to be found between enjoying and over-spending. Most families increase their retirement savings when the children are gone, but not by enough. Ramping up spending, instead of saving, means years of missed opportunities to build your retirement accounts.
The best advice is to take the long view. Savings instead of putting a convertible in the garage or taking lavish vacations, when a more modest approach is equally enjoyable, could change the nature of your retirement.
Reference: USA Today (Jan. 14, 2019) “5 ways empty nesters can boost their savings and turbocharge their 401(k)s”
I heard Cindy’s presentation at a Senior Luncheon at my church, and was very impressed. She helped my daughter and me understand many aspects of elder law. Josh has also been very helpful in my planning to enter an independent living situation . I have told many friends about them.
The very best elder law attorney and staff anyone could ever ask for! I have referred a number of clients to Cindy and she never disappoints. She is kind, caring, and extremely thorough in making sure everything is completed as it should be. I highly recommend Cindy for anyone needing lawyer services; she truly goes above and beyond for every client she helps and has had a huge impact in so many peoples’ lives. Thank you, Cindy and staff, for everything that you do- I’m so glad to know you!
Cindy and the Nelson Elder Care Law team are trustworthy and helpful. They are the experts in elder care law. At Leaf Cremation, we entrust our families to the care of the Nelson team when their services are needed.
Josh Nelson, and his staff, have been amazingly helpful to our family. The ins and outs of nursing homes, the rules and regulations that govern Medicare and Medicaid are daunting and the folks at Nelson Elder Care Law have been informative, responsive, and above all, empathetic. I cannot emphasize enough how their service has taken a weight off of our shoulders especially during a world pandemic that has targeted nursing homes across our country. I highly recommend retaining Josh and his firm!
I had a simple legal question to them that I needed answered and they very helpful in giving me the information I needed. I highly recommend them and will reach out to them if I need more advice or assistance. Thank you for taking your time to just answer a couple of questions I had!