If your retirement portfolio needs a jump, either because you got into the savings game late or because the economic strain of COVID-19 put a dent in your existing savings, you’ve got options. Even if you are between 55 and 64, you still have time to boost your retirement savings. The following are a few of the ways how you can do it.
Max out your employer-based retirement plan
If your employer offers a 401(k) or 403(b) or other voluntary contribution retirement plan, now is a good time to invest as much as possible if you are not already doing so. In 2020, the maximum amount anyone can contribute to a 401(k) plan for the year is $19,500, but if you are 50 or older, you can invest an additional $6,500 in catch-up contributions for a total of $26,000.
This is an easy and convenient way to invest in your retirement, all the while reducing your taxable income. Additionally, there’s arguably no better time to invest than late in your career. “Because your 50s and early 60s are likely to be your peak earning years, you may also be in a higher marginal tax bracket now than you will be during retirement, meaning that you’ll face a smaller tax bill when that time comes,” says personal finance writer Greg Daugherty.
And if your employer matches a percentage of your deduction, that’s free money you shouldn’t forgo.
Invest in an IRA
You may want to consider contributing to an individual retirement account if you are eligible for one and have the means to do so in addition to contributing to your 401(k) or 403(b) plan. In 2020, you can contribute $6,000 to an IRA as well as an additional $1,000 if you are 50 or older. There are two types of IRAs — traditional and Roth — and either one could help boost your retirement. Understanding which type of IRA is best suited for you and your retirement plans may require the help of a retirement planning specialist.
Don’t be too cautious
Traditional advice says to take more investment risks while you are young and to make safer investments while drawing closer to retirement. And while the advice is sound, personal finance author Deborah Fowles cautions against being too conservative. “Even at 45 or 50 years old, you have several decades for your retirement earnings to grow, so invest a large percentage in carefully researched, proven stocks, or, better yet, mutual funds.”
In any case, especially in the context of COVID-19’s effect on the market, now is a good time to rethink your investment allocations. Regardless of your age, you should ensure your portfolio is diverse, as this is the best protection against risk. Keep the strongest stocks in your portfolio and trim those lagging behind. You should also rebalance your portfolio back to your target asset allocation if it changed.
Increase your cash flow
Putting up to $32,000 aside each year to invest in an employer-supported retirement plan and an IRA may sound like a great idea to someone who can afford it, but what if you are limited by your income? What if COVID-19 or other circumstances have left you unemployed and unable to pay for the bills? One of the ways to boost or protect your retirement portfolio is to increase your cash flow.
The most straightforward method is to spend less. This is generic advice you might hear from anyone, but it’s easier than ever now in a world of social distancing and quarantine. Staying at home means less money spent on gas, restaurants and social events. "With social distancing, most people can't spend as much as they did in pre-COVID-19 days,” says Anthony Ogorek, president and founder of Ogorek Wealth Management. “You may be surprised at how little you need to draw [from your retirement account] on a temporary basis." Even when the world gets back to normal, spending less is a legitimate strategy to have more money to invest in your future.
If you’re just getting into retirement planning or need to make changes because of COVID-19, make sure to talk to a retirement planning specialist at your local financial institution to help you best prepare your future.