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Retirement Catch Up Options

4 min read

30 sec brief

If you’ve recently run your retirement numbers and come up a bit short, it’s time to do some fresh planning, not panic. Double down on saving more can help you close any gap between what you have already managed to sock away, and what you want to have by the time you’re ready to retire.

If you’ve recently run your retirement numbers and come up a bit short, it’s time to do some fresh planning, not panic.

Double down on saving more can help you close any gap between what you have already managed to sock away, and what you want to have by the time you’re ready to retire.

If you’re stressing that you don’t have the cash flow to save more, your first task is to take a clear-eyed spin through your spending. Yep, time for some budget work. If you don’t use a spending/budgeting app, pull up a few months of bank and credit card statements.  Average out your spending and then challenge yourself: can you cut your spending by 20%? Don’t just say “no way.” Take some time to see where you might be able to nip and tuck. Maybe some spending gets eliminated completely – cutting the cable cord, canceling the gym you rarely go to – and other expenses are trimmed. Fewer lunches out, maybe adding two weeks more between haircuts. Be creative.

One fantastic way to free up money is to keep driving your car long after the loan is paid off. The average car loan runs more than $500 a month. Get that paid off ASAP, and you can then pay yourself the $500 each month into your retirement account. That’s going to generate some serious catch-up.

The point is that it is the rare budget that doesn’t have some give in it. If you’re serious, you likely can free up some valuable dollars to add to your retirement savings. Once you do, here’s how to catch up:

  • Max out at Work. If you’ve got a retirement plan through work, make the most of it. The standard limit is $18,500 in 2018, but if you’re at least 50 years old the limit is $24,500.=
  • Save in an IRA too. Everyone is eligible to contribute to an Individual Retirement Account. All the discount brokerages offer IRAs. The IRA contribution limit for 2018 is $5,500 if you are younger than age 50 and $6,500 if you are at least 50.=

If you’re single and have income below $120,000 ($189,000 for married couples filing a joint return) you can save the full amount in a Roth IRA. Roth contributions don’t get you any tax break (you contribute dollars that have already been taxed), but your money grows tax deferred and then in retirement you can make withdrawals that are 100% tax-free. If you instead save in Traditional IRA, you may be eligible for an upfront tax break on your contribution, but 100% of your withdrawals in retirement will be taxed as ordinary income.

  • Self-Employed? Check Out a SEP-IRA. If you are self-employed, or have any gig-economy work, you can save a lot more than standard IRA amounts through a Simplified Employee Pension (SEP) IRA. In 2018, you can contribute as much as 20% of your net income, up to $55,000. All the major discount brokerages offer SEP-IRAs.=
  • Consider an HSA. If you opt for a high-deductible health insurance plan (HDHP) you are eligible to save money in a health savings account (HSA). You can always use money in your HSA to pay current medical bills, but an HSA can also be a great way to catch up on retirement savings. In 2019 individuals can save $3,500 in an HSA and households with a family health plan can save $7,000.

If you can handle all your current medical expenses out of your regular cash-flow or savings, you can treat your HSA account as a retirement account. The tax breaks exceed what you get with either a 401(k) or an IRA. Your contribution is tax deductible, the money grows tax deferred while it is in your account, and you can make tax-free withdrawals to cover qualified medical expenses. That triple tax break, makes an HSA one of the most effective ways to catch up on your retirement savings.

If you need more help with health account decisions, check out our blog. We will make you a healthcare benefits expert in no time, without any extra work or effort on your end.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.

About the author

Carla Fried

Carla translates business and personal finance concepts into engaging content that helps individuals make more confident choices in how they manage their money. Her work appears in The New York Times, Money Magazine, Barron's and Consumer Reports.

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