Is it ever too late to plan for retirement? No, as long as you're willing to be thrifty and extend your working years and be mindful of your individual and employer-based retirement savings options. Building a successful, comfortable retirement depends on a variety of individual factors, including where you live, how long you plan to work, your health and your other investments and assets.
The IRS recently announced an update for your options, including cost-of-living adjustments that will give many taxpayers the advantage of putting more away during 2015. Here's a summary:
- Regular contribution limits for 401(k), 403(b), most 457 plans, and the federal employee Thrift Savings Plan. Increased from $17,500 (for tax year 2014) to $18,000 (for tax year 2015). The catch-up contribution limit for employees aged 50 in these plans is increased from $5,500 to $6,000. Contribution deadline: Dec. 31.
- Annual contribution limits, Individual Retirement Accounts (IRA). For both traditional and Roth IRAs, the annual contribution limit is not subject to a cost-of-living adjustment and remains at $5,500. The over-50 catch-up contribution amount is $1,000. There are particular restrictions (https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-contributions) based on income levels, workplace retirement plan coverage among other issues. Contribution deadline: April 15.
- Higher 2015 income phase-out levels for traditional IRA contributions. For singles covered by a workplace retirement plan, the 2015 cutoff is now increased to a modified adjusted gross income (AGI) between $61,000 and $71,000. The IRS website details other significant increases and updates in phase-out levels for married couples and singles.
- Higher 2015 income phase-out levels for Roth IRA contributions. The IRS website also updates higher phase-out levels for married and single taxpayers on its website. For married couples filing jointly, the 2015 level is now $183,000 to $193,000.
Here's what you can do if you're in your 50s and you haven't yet saved much for retirement:
- Get qualified financial advice. Organizations such as the Association for Financial Counseling Planning and Education (http://members.afcpe.org/search), Certified Financial Planner Board of Standards list qualified financial advisors, and your state CPA society can suggest tax professionals in your area.
- Budget and downsize. Want to retire? Start living like a retiree while you're still working. Most experts believe late starters (50 and over) need to put away at least 10 percent of gross income to start making headway. Create a realistic budget, trim debt and consider cheaper housing, transportation and lifestyle options.
- Take advantage of "catch-up" contribution limits. Retirement savers over the age of 50 have the option to put more away not only in traditional and Roth IRAs but also 401(k) plans – not including SIMPLE 401(k)s, 403(b) plans, SARSEP and 457(b) plans (see Annual contribution limits, IRAs above).
- Keep working…strategically. If you're lucky, you love your work or are in a position to change careers to one with better retirement savings options. If so, consult an expert on ways to keep earning and investing effectively.
Bottom line: The government's cost-of-living adjustments will allow you to save more for retirement in 2015, but don't wait until then to evaluate your goals to set – or reset – your retirement planning going forward.