The Boomers and Retirement Survey from TD Ameritrade revealed that while Baby Boomers have saved, on average, $275,000 for retirement, they believe they will need a median of $750,000 in order to live comfortably.
“Faced with this shortfall, many Americans over the age of 50 may want to consider an important opportunity that could help their retirement planning—catch-up contributions,” Dara Luber, senior manager of retirement, TD Ameritrade, told PLANSPONSOR. “A catch-up contribution allows investors over age 50 (by the end of the calendar year) to make additional contributions to their IRA or employer-sponsored retirement plans. These catch-up contributions are in addition to regular contribution limits.”
For 2013, the 401(k) contribution limits are $17,500 with an additional $5,500 catch-up contribution (for a total contribution of $23,000). As for individual retirement accounts (IRAs), the limits for 2013 are $5,500 with an additional $1,000 catch-up contribution (for a total contribution of $6,500).
Luber said plan sponsors should encourage employees to fully fund their 401(k) or IRA, adding that employees have until tax day, April 15, to make their 2013 IRA contributions. “Remind employees that it’s never too late to start saving for retirement,” said Luber. “Even small amounts over time can make a difference.”
She cited the example of contributing an additional $1,000 a year into an IRA, starting at age 50 and continuing until age 70. This could mean an additional $34,719 towards retirement (using the parameters of $1,000 contributed a year, over 20 years, with a 5% rate of return). Luber also pointed to the fact that an employee fully funding an IRA with $6,500 a year at age 50 until age 70 could mean an additional $225,675 for retirement at age 70 (with the parameters of $6,500 a year, 20 years, and a 5% rate of return).
“If they get a late start it may just mean they have to adjust their retirement expectations, think of other means of support that they may have never considered before or work a little longer,” added Luber.
More information about the survey can be found here.