This is also when you might find yourself juggling other goals. That budgeting habit you formed in your 20s will pay off: A budget based on your values will help you prioritize when financial goals and responsibilities start to pile up. “Early on, you’re taking time to think through what is more or less important,” says Stuart Ritter, a senior financial planner with brokerage firm T. Rowe Price. “Maybe you’re saving for a big house but you’ll drive an older car, or you want to take vacations but you’re OK living in a smaller house.”
IN YOUR 40s: TAKE STOCK OF WHERE YOU STAND
If you’ve been consistently saving for the better part of two decades, you probably have a nice pile of money. If you haven’t yet figured out how far that money will get you in retirement, now’s the time to do so. A retirement calculator will give you a good idea of your savings progress, and tell you whether you need to ramp things up, keep cruising along or even — in some rare cases — dial back. If you’ve been consistently stashing away 15% of your income, you might find you’re in a good spot to shift extra dollars to other goals, for example, college savings if you have kids. You might also have various retirement accounts. It may be worth bringing old 401(k)s together under one roof, says Ritter. “If you’ve changed jobs a couple times, you don’t want to leave a pot of money somewhere that you’ve forgotten about.” You can do that by transferring old balances directly into a rollover IRA.
If you’ve changed jobs a couple times, you don’t want to leave a pot of money somewhere that you’ve forgotten about.
IN YOUR 50s: CATCH UP WHILE YOU CAN The IRS knows that many people are behind in saving for retirement, and so it throws out a bone for people this age: The contribution limits for tax-advantaged retirement accounts like 401(k)s and IRAs increase for those over 50. These catch-up contributions allow you to put an extra $6,000 into a 401(k) and an extra $1,000 into an IRA every year. That brings the contribution limits for these accounts to $25,000 for a 401(k) and $7,000 for an IRA in 2019. “If someone is fully funding retirement accounts and they have the income to do so, using the catch-up contribution at age 50 is a great way to supercharge savings into the homestretch of their career,” says Schumann.
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