As a preretiree, you probably spend a lot of time thinking about retirement savings. Since this week is National Save for Retirement Week, I want to take a look at five things you may not know about retirement income and savings.
- It’s never too late to start saving. Even if you’re only 10 years out from the age at which you’d like to retire, you can start saving and make a huge impact on your retirement years and income. Saving just $6,500 per year through monthly contributions for 10 years in a Roth IRA and allowing it to grow at 2 percent can net you over $71,000 in tax-free income. And, if your income is below a certain amount, you might qualify for the Saver’s Credit, giving you a tax deduction on this tax-free income.
- It’s also never too late to start contributing to an employer plan. Even if you’ve gone decades without taking part in an employer-sponsored retirement plan, you can start now. The next time your employer has its open enrollment period, sign up to contribute as much as you can. If your employer offers a contribution match, do your best to max out that match so you can gain the added benefit of free money from your employer.
- There are ways to secure a healthy, guaranteed retirement income, even if you start saving late. When you start thinking about your savings in terms of providing you an income for decades during retirement, you might realize just how uncertain that concept is—especially when you haven’t secured any kind of guaranteed growth that can outpace inflation. There are solutions to this issue, such as annuities with guaranteed income benefits that can help you secure an income based on your principal contribution, regardless of how the market does.
- You may have other, hidden sources of retirement income. Many retirees have sources of retirement income that they aren’t even aware of. Some of them will come from assets you own, such as a reverse mortgage on your home or the sale of your life insurance policy. In some cases, with policies that have cash value accrual, you may even be able to take tax-free loans from life insurance cash values to help sustain your retirement income needs.
- Having other sources of income can gain you substantial amounts in Social Security. Sometimes when we save for retirement, we don’t think about the ways those savings help us gain funds in other areas. Consider this: if you have to take Social Security before you reach full retirement age, you could lose as much as 30 percent of the benefit you’re entitled to. If you take it after full retirement age, you could gain as much as 8 percent of your full amount. That means that having savings to pull from early on could help you gain up to 38 percent on your Social Security income since you won’t be forced to take early benefits.