Retirement Savings: Starting Late and Catching Up
It's not too late — and here's exactly what to do next
By Trish Tipton
Many people arrive at their forties or fifties with far less retirement savings than the conventional wisdom says they should have, and the guilt and anxiety this produces can be paralyzing. The truth is that starting late is genuinely better than not starting at all, and consistent contributions in the years you have remaining will still make a meaningful difference.
If your employer offers a 401(k) match, this is always the absolute first priority — contribute at minimum enough to capture the full employer match. This is an immediate 50% to 100% return on your investment, which no other financial product can match. Not contributing enough to capture the full match is the equivalent of leaving part of your salary on the table.
After capturing any employer match, maximize a Roth IRA if your income qualifies. Roth contributions grow tax-free and withdrawals in retirement are tax-free — an enormous advantage, especially if you expect to be in a higher tax bracket in retirement. The contribution limit changes annually; check the current limit with a quick search.
Catch-up contributions are available to savers over age 50. Both 401(k)s and IRAs allow additional contributions above the standard limit for those 50 and older. These extra contributions can significantly accelerate savings in the years leading up to retirement. A financial advisor or a fee-only financial planner can help you model what consistent contributions will mean for your retirement income at various ages.