Understanding the Basics

Making Up the Shortfall

You may find that you haven't saved enough for retirement. There are different strategies for making up the shortfall, depending on your age. Let's look at three different age ranges to illustrate the strategies.

To Age 35

  1. Fund your largest expense first—saving for retirement. Balance short term saving while contributing to your retirement program.
  2. Develop a spending plan; you may be living over your means. Try living on 10% less of your paycheck. If that's not possible, gradually reduce your spending monthly by 2%. Shift those savings into your retirement plan.
  3. Review how you're presently allocating your retirement portfolio. Retirement is a long way off; make sure you are seeking to achieve long-term growth.
  4. Avoid paying for permanent life insurance if you don't need it. Buy term insurance and invest the difference in your company's savings plan or an IRA.
  5. Forget about postponing retirement. Focus on savings.
  6. Work for an employer with a strong benefits package.

Age 35 to Age 50

  1. College tuition bills and home improvements may be your two biggest immediate expenses. Make sure your retirement plan contributions don't fall behind. Keep your priorities in focus.
  2. Make a budget, develop good shopping skills and consider reducing your everyday expenses. Look at the big picture and make sure you're not spending beyond your means.
  3. Consider having your children work part-time and contribute to their tuition expenses, assuming they're old enough.
  4. Review your retirement portfolio and make sure you are well diversified and positioned for long-term growth.
  5. Work for an employer with a strong benefits package.

Age 50 And Above

  1. Saving for retirement is your number one priority. If you have disposable income, consider using some of it to fund your future retirement. Make sure you're making the maximum contributions to your company's plan, especially if it has a company match. In addition to the maximum pre-tax contribution, special catch-up contributions can be made annually to certain plans if you are at least age 50. Consider only tax-advantaged vehicles, to reduce your tax liability and make the most of tax-deferred compounding. Also, determine if saving in a tax-free Roth IRA suits your situation.
  2. Control your spending. Budgeting is essential.
  3. Maintain a growth component in your retirement portfolio; this is essential to help you make up the shortfall. But you don't want to subject your retirement to too much risk either. You should also learn how you will make the transition to an income-producing portfolio as you approach retirement.
  4. If you have a cash value life insurance policy, find out if the policy can "pay for itself." You may have enough cash value and dividends to keep the policy in force through your retirement years. Put those unused premium dollars into your company's savings plan or an IRA.
  5. Consider asking your spouse to work part- or full-time.
  6. Consider working part-time after you retire from your full-time position.
  7. If your company doesn't offer you a retirement plan and you haven't started to save, consider finding an employer that has a strong retirement plan. You'll still be able to work enough years to receive a payout. If that's too drastic, consider either a Roth IRA or a traditional IRA and put as much money as you can into them each year. In addition to the regular IRA contribution, special catch-up contributions can be made annually to both traditional and Roth IRAs if you are at least age 50.
  8. If you are coming up short, postpone retirement a few years.

SUGGESTION: Contributions to a Roth IRA can be made even after age 72 (70½ if you reach 70 1/2 before January 1,2020) as long as you have earned income.

No strategy assures success or protects against loss.

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