Top 12 Retirement Savings Tips for 55-to-64-Year-Olds

Published on February 12, 2024 at 1:33 pm by Ghazal Ahmed in Lists, News, Retirement

This article takes a look at the top 12 retirement savings tips for 55-to-64-year-olds. If you wish to skip our detailed analysis on decoding retirement savings, you may go to Top 5 Retirement Savings Tips for 55-to-64-Year-Olds.

On Decoding Retirement Savings

According to the Motley Fool, those who have more than $1 million in retirement accounts fall amongst the esteemed top 3% of retirees. It’s true: a large percentage of Americans don’t have the “magic number” they think they need to spend a comfortable retirement. In fact, according to EBRI estimates, while 3.2% have $1 million saved, only a mere 0.1% have more than $5 million stacked up for retirement. With social security funds set to deplete by 2033, depleting retirement savings, and health expenditures rising each passing day, the future isn’t the golden dream many boomers previously envisioned it to be.

Yet, the single factor that can safeguard aspiring retirees from derailing their retirement dreams is, cue the drumroll: proactivity. After all, jumping after the same magic number isn’t the right way to go about your retirement anyway. After going through all the numbers Americans have been predicting that they think is the magic figure, like the $1.8 million figure from The Charles Schwab Corporation (NYSE:SCHW)’s study and the $1.25 million from Northwestern Mutual, the conclusion that can be made is that it all depends.

“Tempting as it is to put a single number on retirement, the answer to how much you’ll need to save depends on the life you expect to lead.”

-Debra Greenberg, director, Personal Retirement Product Management, Bank of America Corporation (NYSE:BAC).

In simpler terms, the key to determining the adequacy of your retirement funds hinges on various factors. For instance, how early or later on in life you decide to retire plays a crucial role in determining your nest egg, and so do things like how much you’ve already saved or how early you started saving. Then, some states are best to retire to for taxes and costs of living, and yet again, there are worst ones, too. However, this doesn’t imply that seniors don’t choose to reside in the latter, does it? Aspects such as property and sales taxes, and even health expenditure also determine how much of your retirement income is left to spend on things such as rent and groceries.

“Because there are so many variables, even the retirement researchers can’t agree on a total dollar amount.”

– Ben Storey, director of Retirement Research & Insights at Bank of America Corporation (NYSE:BAC).

Over the years, numerous metrics and calculators have emerged, enabling individuals to compute a personalized savings target for a comfortable retirement. For instance, Bank of America Corporation (NYSE:BAC)’s Financial Wellness Tracker helps individuals determine, depending on their age and how much they make, how much they should be saving annually to reach a set retirement goal, amongst other things. Similarly, there’s a retirement income calculator by T. Rowe Price Group, Inc. (NASDAQ:TROW) that tells individuals the estimated probability of reaching their retirement goals. No matter what instruments you choose and which financial advisors you rely on, it is crucial to start taking steps in the right direction. The bottom line is, that even if you’re 50 years old and have no retirement savings, there is hope for you.

Top 12 Retirement Savings Tips for 55-to-64-Year-Olds

An elderly couple in a garden with a laptop, representing how the company empowers its customers to make the best retirement and tax-deferred investment decisions.

Methodology

To compile the list of top 12 retirement savings tips for 55-to-64-year-olds, we exhausted our research across various reputable sources, including Investopedia, Wise Advisor, Forbes, Morgan Stanley (NYSE:MS), Turbo Tax, and CNBC, to name a few. Next, we adopted a consensus approach to rank our retirement saving tips, awarding one point to each tip each time it was recommended by a source. These tips have been ranked in ascending order from the lowest to the highest scores.

By the way, Insider Monkey is an investing website that tracks the movements of corporate insiders and hedge funds. By using a similar consensus approach, we identify the best stock picks of more than 900 hedge funds investing in US stocks. The top 10 consensus stock picks of hedge funds outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). Whether you are a beginner investor or a professional one looking for the best stocks to buy, you can benefit from the wisdom of hedge funds and corporate insiders.

12. Plan your retirement age

Insider Money Score: 15

According to T. Rowe Price Group, Inc. (NASDAQ:TROW), a 55-year-old today should have at least 4.5 to 8.5 times their salary saved today. However, T. Rowe Price Group, Inc. (NASDAQ:TROW) also asserts that the point of benchmarks for retirement savers is to prompt action amongst them, not to make them feel inferior or inadequate by any means. The bottom line? Individuals should start saving immediately and a starting point for them is to plan a certain age by which they plan on retiring. As an individual who has entered the 55-to-64 age category, you must already have an age in mind regarding retirement. Any health complication, if any, would help you assess how long you may be able to work.

11. Devise your Social Security strategy

Insider Money Score: 16

Many Americans believe that social security is calculated based on their entire life’s worth of work. However, the reality is that these payments are calculated based on your 35 highest income years. Also, the age at which you decide to claim your Social Security benefits will determine how much you will receive. For instance, waiting until the full retirement age can reap higher benefits while claiming early means you will receive smaller payments for the rest of your life.

According to a study, if you’re between the ages of 45 and 62 and start getting your Social Security benefits before you turn 70, you might end up losing around $182,370 in lifetime discretionary spending. Also, if you plan on working during retirement, analyze how that can impact your social security benefits as well. Understanding the impact of different claiming ages will ultimately help you project your lifetime income, as well as make informed decisions about working during your pre-retirement and retirement years.

10. Explore entrepreneurial opportunities

Insider Money Score: 17

Considering additional sources of income at this age is another top retirement saving tip for 55-to-64-year-olds. Anything from venturing into a small business to freelancing and even starting a consultancy business can help you save for those golden years strategically. While financial benefits are obvious in our tip, pursuing areas of work that align with your passions and goals can help you bring a sense of purpose in your late years of life as well. As an individual, the biggest draw of having a solo 401(k) is that you can allocate up to 25% of your net self-employment income, with contribution limits reaching $66,000 in 2023 and $69,000 in 2024.

9. Consider adding an IRA

Insider Money Score: 18

Starting your retirement savings later in life, even if you contribute the maximum to your 401(k), may not provide the same relief as it would have if you had begun earlier. In such a case, or in the case your employer doesn’t provide a 401(k) plan at all, another prospective option to consider is opening up an Individual Retirement Account (IRA). As of 2024, the maximum amount that an individual can contribute to an IRA is $7,000, or $8,000 for those aged 50 and over. There are two types of IRAs that you can consider opening: traditional and Roth. In a traditional IRA, your contributions are pre-tax, providing an immediate tax deduction. On the other hand, a Roth IRA offers a tax advantage through tax-free withdrawals at a later stage. Both types have different contribution limits as well.

8. Use catch-up contributions

Insider Money Score: 19

Another top retirement saving tip for 55-to-64-year-olds is using catch-up contributions. Individuals can make use of this facility from the age of 50, making additional contributions to their 401(k) accounts as well as their IRAs. A catch-up contribution increases the total contribution beyond the standard limit. In 2024, individuals have the opportunity to increase their annual 401(k) contributions by an additional $7,500, provided that these contributions are completed by the end of the calendar year. Following the 401(k) contribution limits, individuals aged 50 and above now have the ability to contribute a total of $30,500 to their 401(k) each year. The catch-up contribution limit is $7,500 in 2024 on top of the annual $23,000 contribution limit.

7. Make use of the Savers Credit

Insider Money Score: 20

The Retirement Savings Contributions Credit, also known as the Savers Credit, is a special kind of tax break granted to low-and-moderate income taxpayers who are in the process of saving up for retirement. Provided that they qualify, savers credit may reduce or even eliminate an individual’s tax bills. Depending on an individual’s adjusted gross income and tax filing status, they can claim a tax credit for 50%, 20%, or 10% of the first $2,000 contributed during the year to their retirement account. As explained by a Turbo Tax expert, the maximum credit amounts an individual can claim are $1,000, $400, or $200, based on their specific situation. The credit can be claimed for contributions to a 401(k), 403(b), 457 plan, Simple IRA, and SEP IRA.

6. Stay away from your retirement savings

Insider Money Score: 21

The best retirement advice from retirees so far is to stay away from your retirement savings, period. After an individual crosses the age of 59 and a half, they can make penalty-free withdrawals from their traditional IRA plans and IRAs. On the other hand, Roth IRA contributions can be withdrawn anytime, and that too, penalty-free. There is even an IRS exception that permits workers aged 55 and over to withdraw contributions penalty-free in case they lose or leave their jobs. It’s called the Rule of 55. Even though these options exist to make your life easier, it’s best to avoid heading down this path for as long as you possibly can.

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