This year, the youngest of the baby boomers turn 50. This places them in the sweet spot for retirement savings, because they are now eligible to make catch-up contributions.
Catch-up contributions are a provision that was created by the Economic Growth and Tax Relief Reconciliation Act of 2001, so that older individuals would be able to set aside enough savings for retirement. In your younger years, you likely need a majority of your income to pay for living expenses. Once you are in your 50s, your children may be grown and your expenses may have gone down. You may also be in your peak earning years in your career.
In 2014, those 50 and older are eligible to save an extra $5,500 to their 401(k) plans and $1,000 to their IRAs, bringing the total yearly contributions to $23,000 and $6,500, respectively. An individual doesn’t have to wait until they turn 50. One can make a catch-up contribution at any time during the year as long as the investor turns 50 years old before the end of the year.
These boomers will be eligible for full Social Security benefits at 67, which gives them about 17 years to save. Theoretically, a married couple could save more than $46,000 a year for 17 years, which should provide a substantial nest egg. Additionally, this would give them at least seven years where the money could be invested in the stock market.
We believe it is more important for individuals to save when they are younger so they can take advantage of having their money invested longer. However, catch-up contributions can allow you to make up for not saving as much in your younger years.
At Henssler Financial we believe you should Live Ready, and that includes taking advantage of the savings opportunities available to you. If you have questions regarding your retirement planning, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or e-mail at [email protected].