By: Gene Walden, Senior Finance Editor October 01, 2019
While some Baby Boomers have a foundation for a well-funded retirement, many others are playing catch-up.
If you’re in the generation born between 1946 and 1964, and you’ve accumulated an adequate nest egg to see you through your twilight years, congratulations. The biggest issues you face may be determining proper asset allocation and budgeting to make your retirement funds last.
But what if you’re a Boomer who can’t honestly say you have enough assets to enjoy retirement – or even simply pay the bills – during your golden years? Your first priority would likely be to accumulate a retirement nest egg that covers your expenses for the rest of your life.
Because the Baby Boomers generation spans from pre-retirement to post-retirement, there’s no one-size-fits-all financial formula. But you may fit into one of these broad situational categories:
1. If you still have children in school. . .
If your children are headed for college or trade school – or are already there – you may be tempted to help them cover their costs. If you’re financially secure and your retirement savings plan is on track, that may make sense. But if you’ve fallen behind on your retirement savings, you may be better served to encourage your children to find other ways to finance their education.
While you may have limited time and resources to build your retirement nest egg, your children may have a lifetime to pay back their education expenses. They may also have a number of other funding options available, including scholarships, work-study programs, financial aid, and student loans. They could also reduce costs by choosing a less expensive school. (See: Juggling Your Retirement Savings and Your Children’s Education)
2. If you’re still working in your 50s. . .
If your retirement fund is on track and you are continuing to fund it to try to keep it growing, you’re well ahead of many of your peers. At some point, you may decide to move to a more conservative asset allocation. While a more conservative approach with greater diversification won’t necessarily eliminate losses in a down market, it may help limit those losses and reduce the impact of market volatility to your portfolio. If you’re behind on your retirement savings, here are some steps that may help you get back on track:
- Cut back expenses. Reduce your lifestyle costs to free up more money to put into your retirement savings plan.
- Contribute the maximum to your tax-advantaged retirement plan, including a “catch up” contribution. If you have a 401(k) or traditional Individual Retirement Account (IRA), the money may be deductible from your taxable gross income for the current year as it grows tax-deferred in your account. And if you can afford it, you should contribute the maximum amount allowed. (See: Traditional IRA vs. a Roth IRA)
- Start a Roth IRA. Even if you already contribute to a 401(k) at work, you may also be able to contribute money to a Roth IRA in order to accelerate the savings process. Although your contributions to a Roth IRA are not deductible from your taxable gross earnings, investments within the account would typically grow tax-free. (See: The Power of Pairing Your 401(k) with a Roth IRA)
- Seek alternative tax-favored investments. If your company doesn’t offer a 401(k) or other retirement plan, you may be able to take advantage of a similar tax break by contributing some of your wages to either a Simplified Employee Pension (SEP) or a traditional IRA. (See: Don’t Miss the Tax and Savings Benefits of an IRA)
In terms of asset allocation, many people become more conservative as they get older to reduce risk and volatility. That may be a sound strategy if you have already accumulated an adequate amount for your retirement.
But if you’re still behind on your savings goals, you may find it helpful to continue to pursue a fairly aggressive strategy that includes stocks or stock mutual funds within a diversified portfolio. The stock market may be volatile and risky in the short term – with the potential for market losses. That noted, its performance has historically evened out over the long term as the economy moves through its various cycles. Since you may be working several more years and living off your investments for many years after you retire, you may prefer a strategy that is geared toward long-term performance.
3. If you’re still working in your 60s (or 70s) because you can’t afford to retire . . .
First, refer to the above advice: Reduce your expenses, contribute as much as possible to a 401(k) or other retirement funds, and don’t get too conservative with asset allocation. You need your money to grow over the long term. But as people get older and begin to reach their savings goals, many choose to reduce risk and volatility by diversifying and by reducing (but not eliminating) the allotment to stocks or stock mutual funds.
You may consider buying asset allocation funds that invest in a broad mix of stocks, bonds, and other types of investments. These funds offer an asset allocations range from conservative to aggressive, so you may find it helpful to move from aggressive to moderately aggressive to moderately conservative as you get older and accumulate greater wealth. (See: Asset Allocation Funds Can Help Tame Volatility)
(Thrivent Mutual Funds offers four asset allocation funds that are automatically diversified and range from moderately conservative to aggressive.)
A couple other steps you may wish to take would include:
- Look for another source of income. Work a second job or start a business that brings in some additional income to help bolster savings.
- Think about staying on your job longer. If your employer allows you to stay on the job until your late 60s or 70s, that could make a dramatic difference in your retirement savings. It’s addition—not subtraction. It means you would be able to live off your salary for a few more years while continuing to invest more into your retirement account plan, and give your investment portfolio more time to grow.
4. If you’re already retired but regretting it . . .
Some people believe they’re ready to retire, but then discover in retirement that their funds aren’t sufficient to cover their expenses through the rest of their life. If you have retired and suspect you may need to cover a possible shortfall, you may be able to find a full- or part-time job. Or you may explore opportunities such as consulting, to allow for a more flexible schedule.
You could also consider starting your own business. If you have a special skill, such as home repair or landscaping, you may be able to develop a successful business to bring in money to cover your expenses and invest for the future. (See: How to Get Your Retirement Savings Back on Track)
5. If you believe you’re set for life and ready to retire (or already retired) . . .
If you’re still working and have some flexibility regarding when you retire, it’s a great idea to take one final step and either talk to a financial professional or do a thorough calculation of the amount of money you’ll need in retirement before leaving work. (See: How Much Will You Need to Retire?)
No matter what path you take in funding your retirement, try to remember that these are (or will be) your golden years. Whether or not you’ve retired, make sure to have fun, enjoy your family and friends, and cherish every day.
This information should not be considered investment advice or a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
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