Retirement Savings: A Game Plan for Folks in the 50's

Last Updated Apr 29, 2011 11:37 AM EDT

A few days ago I wrote about retirement savings advice for folks in their 30's and 40's.

But if you've made it to your 50's, how much should you have saved for retirement?

According to the National Savings Rate Guidelines study, assuming you are looking to retire at age 65 and have earned an average income, by the time you in your mid-50's you should have accumulated 8 to 10 times your annual pay in retirement savings still be be saving 15 percent or more of your income in your 401(k).

If you are not as prepared for retirement as you should be, don't panic. For many folks, the 50's marks a time in their life when some expenses can begin to go down. For example, you may be winding down college tuition payments, or maybe you have paid off a home equity loan. Also, at this age many workers are typically entering their peak earning years. Hopefully you have an increase in available cash flow, which can help you to ratchet up your retirement savings.

So, here's a retirement savings game plan for folks in their 50's.

Catch-Up Your Contributions
If you've been saving since your 20's, you could have accumulated a significant amount by the time you are 50 and that balance has grown to be a sizable chunk of change. But don't think about slowing down on your savings. Now is the time to kick your savings rate into high gear.

Make the maximum contributions you can afford to your 401(k) plan and even consider additional contributions that are available to workers age 50 and over. In 2011 the maximum pre-tax contributions allowed to a 401(k) type plan is $16,500. If you are age 50 by the end of the year, you can also contribute an additional catch-up contribution of $6500, for a total pre-tax contributions of $22,000.

Run Your Retirement Numbers
According to the 2011 Retirement Confidence Survey only about 42 percent of workers report that they have tried to calculate the amount of money they will need to have saved so that they can live comfortably in retirement. That means that most workers in this do-it-yourself retirement system are flying blind without even a clue of how much they will need to have save.

The time to find out you have not saved enough is not after you retire. Now is the time to do some serious number crunching. Calculating how much income your current retirement account and annual savings will provide at retirement is a critical step to ensure you are on track to achieving your retirement income goals. If your retirement plan offers access to on-line tools to do this, use them. Also, check out sites such as Financial Engines or Morningstar to calculate what you need to save for retirement.

Step Up Account Monitoring and Continue to Rebalance
Now is also the time to pay more attention to your investment funds in your account and monitor the performance of your account and funds. Also, do not forget to rebalance your account at least once per year.

Invest for Moderate Growth
With a larger balance, a loss of account value can be even harder to recover from and with fewer years ahead of you to make additional contributions to make up for a loss. So now diversification becomes even more important. But it's also important to recognize that your will not be making sizable withdrawals from your retirement savings for some time, and therefore it is suitable to have over half of your account invested in stock funds.

Consider Working Longer
So what to do if you are not on track? Clearly one solution is to stay in the workforce longer thus continuing to save and earn current income to pay for your living expenses. Doing this would enable you to accumulate a longer earnings history which can increase retirement income and savings you may be entitled to under an employer's pension and 401(k) programs. Working longer also leads to a delay on drawing down on your retirement savings or beginning retirement pensions which can lead to increased pension income in retirement.

Workers who work longer and retire at a later age can also increase their monthly Social Security benefits. Also, workers who rejoin the workforce to continue employment increase their Social Security benefit as the years with "zero earnings" are replaced with years with earnings, increasing their overall earnings history on which benefits are based, leading to higher Social Security retirement benefits.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.