As retirement beckons for numerous individuals in their 50s, the prospect of a comfortable transition might be elusive due to inadequate savings.
According to Fidelity, by the time you reach 50 years of age, a prudent aim is to accumulate around six times your annual salary in your retirement fund. This implies that if your earnings amount to $100,000, you should ideally have approximately $600,000 securely stored in your retirement account.
However, the reality paints a different picture as a substantial number of Americans in this age bracket have fallen short of this recommended milestone.
On average, those aged between 50 and 59 possess roughly $189,800 within their 401(k) accounts, as reported by data from Fidelity Investments’ Q2 2023 Retirement Analysis provided to CNBC Make It.
Nonetheless, the majority of individuals find themselves with significantly less savings, often less than one-third of the average balance. The median balance for 401(k)s held by Americans in their 50s stands at $57,000. This indicates that half of all 401(k) balances are below this amount, while the other half surpass it.
The variance between these figures is largely attributed to a handful of accounts holding substantial balances, which artificially inflate the average. In contrast, the median account balance provides a more accurate reflection of the typical retirement savings held by most people.
Strategies for Reviving Retirement Savings
Numerous factors may have contributed to the challenges faced by individuals in their 50s when attempting to save for retirement over the years.
Cathy Curtis, a certified financial planner, founder of Curtis Financial Planning, and a member of CNBC’s Advisor Council, notes that people in their 50s often juggle financial obligations such as college tuition for their children, burdensome mortgage debt, and the responsibility of caring for aging parents who are themselves ill-equipped for retirement.
Inflation’s impact on rising costs has also hindered people’s capacity to save for retirement, irrespective of age. According to the 2023 TIAA Institute-GFLEC Personal Finance Index, approximately 25% of employed adults reported scaling back their retirement contributions in 2022 due to inflation’s strain on their finances, with nearly 12% ceasing contributions altogether.
However, it’s not too late to course-correct if your retirement savings fall short of your comfort level.
Given that external factors such as inflation and market volatility can influence your account balance, it is prudent to focus on an aspect within your control: your retirement savings rate.
The retirement savings rate is the percentage of your income that you allocate annually to your 401(k) or other retirement savings account. Fidelity recommends aiming for a savings rate of approximately 15%, which includes any employer match. On average, individuals in their 50s maintain a savings rate of about 15.7%, based on Fidelity’s data provided to CNBC Make It.
In 2023, the annual 401(k) contribution cap stands at $22,500. However, those aged over 50 have the option to make supplementary catch-up contributions of up to $7,500 per year, effectively raising their 401(k) contribution ceiling to $30,000.
If you’ve already maximized your 401(k) contributions and your income falls below a specified threshold, it’s advisable to explore alternative avenues for retirement savings, such as contributing to a Roth IRA, as suggested by Curtis.
In 2023, if you are single and earn less than $138,000 annually or are married with a joint income below $218,000, you can contribute up to $6,500 each year towards a Roth IRA.
In the face of impending retirement, recalibrating savings strategies can still yield a secure financial future. Despite the challenges, achieving a comfortable retirement remains within reach.
the content is taken from cnbc