How to save for retirement in your 40s, 50s and 60s

The Squeeze

• Age 40 isn't too late to start saving for retirement. Opt into your employer's plan to get as much free money as you can and set up an IRA to maximize your savings and tax breaks.
• In your 50s, you can start making catch-up contributions — which means more savings and higher tax breaks.
• Make a detailed financial plan for retirement when you reach your 60s. Re-allocate investments to reduce risk and figure out the best age to start drawing from your retirement accounts and Social Security to get the most benefit.

Every financial expert marches to the same, industry-wide drum beat, and that beat screams, save for retirement!

Regardless of your age, planning for how you'll live after you stop earning income from working is a constant focus of any money management strategy. Contributing to retirement savings is vital — but how you do it and what you need to know about your plan shifts as you age.

It's never too late to update your strategy for retirement savings. Follow these tips to make the most of your retirement savings as you round the corner into your 40s, 50s, 60s and into retirement.

Saving for retirement in your 40s

Your perfectly planned life would have included starting a 401k at your earliest opportunity, probably in your first job sometime in your 20s. But, "best-laid plans" and all that…

Whether you've been saving for a couple of decades or you just started to think about retirement in your 40s, this is an excellent time to review your options. You've still got a lot of years ahead to grow that savings and benefit from compound interest, so optimizing your plan now will go a long way.

Here are some ways to do that:

• Set your priorities straight. You might be choosing among several financial goals at once: paying down your mortgage, saving for kids' college, eliminating debt and saving for retirement. If you have to choose where to put extra funds, keep your retirement savings high on the list but get rid of high-interest debt or loans, like credit cards or auto loans, first. Then consider putting extra into retirement, over mortgage payments or college savings. The interest you can earn on retirement savings is probably higher than the interest you'll pay on your mortgage, and your kids can borrow for their education.
• Grab your employer's 401k match. If you have access to an employer-sponsored 401k, 403b or 457b plan, great! Enroll and contribute at least the amount your employer matches — usually 3% to 6% of each paycheck. 
• Max out your contributions. In 2021, you can contribute up to $19,500 to your 401k and claim the amount as a tax deduction. If you're not already doing it, can you shuffle other expenses or savings to increase your contributions and get as close to the full benefit as you can?
• Open an IRA. If you're maxing out your 401k, and you still have savings to spare, open an individual retirement account to save even more. In 2021, you can contribute and deduct up to $6,000 for a Traditional IRA. Low-income savers can also claim a Saver's Credit to get an even bigger tax break for retirement contributions.
• Optimize your portfolio. Your 401k might not be allocated in the best investments based on your age and savings goals. Now is a great time to take a look and get it into shape. You can work with a financial planner or use a low-cost app like Firstly, which will optimize your investments and keep them in balance as you move toward retirement.

Saving for retirement in your 50s

Time is your best friend in retirement savings — and the IRS knows that. So, as time runs short, it expands your options. Once you're age 50 and older, you can make additional "catch-up" contributions to your retirement accounts.

In 2021, you can save an additional $6,500 per year to your employer-sponsored plan for a total of $26,000 in tax-deductible contributions per year. You can save an additional $1,000, for a total of $7,000, to an IRA.

Now is also an excellent time to start reducing your expenses. 

As kids move out and your hobbies and lifestyle change, look at where you're spending money to see what you could cut. A smaller home or car could make a lot of room in your monthly budget — extra funds you could put toward retirement while you still have time to earn interest.

Saving for retirement in your 60s

Your 60s is a crucial time to take a close look at your retirement accounts.

Re-allocating investments. When you're within about three to five years of retiring, advisors typically recommend pulling back on growth and now focusing on reducing risk in your investments.

That shouldn't require much from you because you're probably not actively managing where your money is invested. Instead, tell your financial planner that you're nearing retirement, and they can adjust those allocations for you.

They'll move your investments out of risky, high-growth things like stocks and into more stable, slower-growth things like bonds — to make sure you don't lose your skin in the event of a market dip or, worse, when it's time to retire.

Planning for withdrawals. Now's the time to make a solid plan for when to retire and begin drawing on your accounts, including Social Security.

A financial planner is a big help here. They can help you decide the best age to retire based on your savings and your desired monthly income during retirement.

A few things to consider as you plan:

• You can start withdrawing money from IRAs and employer-sponsored plans without penalties as early as age 59½. 
• You'll be required to take minimum distributions (except from Roth plans) once you reach age 70 ½. 
• You can start drawing a Social Security monthly payment at age 62 — but your permanent monthly payment will be higher the later you begin drawing, hitting a maximum if you wait to start until age 70.
• Don't forget to factor in future health care costs, including potential long-term care. Most Americans become eligible for Medicare coverage at age 65. Purchasing long-term care insurance in your 50s or early 60s could help you avoid high costs down the line.
• If you have a spouse or partner, how will your income work alongside theirs in retirement? You might be able to maximize your retirement income by drawing from one or the other's retirement account or Social Security at first while letting the other's benefits grow for a few extra years. One or both of you may need to plan to work until you're both 65 to keep access to health insurance.

Comfortable retirement is about planning (at every age)

Every expert feels compelled to remind the world that the best thing anyone can do for retirement is to start planning for it in their 20s (or earlier).

That's true — optimal retirement planning starts as soon as you enter the workforce. But few of us live perfectly optimized lives. We all still want to retire comfortably.

Regardless of when you get on the retirement-savings train, you can figure out a way to live comfortably in retirement. Don't ever assume you're too late. Just look at your options, and get whatever advice you can, whether from a financial planner or an app.

A comfortable retirement is within your reach, as long as you make a plan.