How do we play “catch up for retirement”?

Question: Danny and Laura in Kenton County: We are both in our 50s and both children are finally out of the house. We haven’t been good at saving since we tried to give kids the financial support they needed. But now that they’re on their own, we want to make retirement a priority. What are your suggestions for us on how to do this?

A: Sacrificing your financial security for your children is certainly not unheard of. And while it’s not something we recommend doing, given that we’re parents ourselves, we know it’s easier said than done. Should you have saved more over the past 18+ years? Yes. But it’s water under the bridge now. You cannot change the past. As you mentioned, you are ready to refocus and redefine your priorities. And for us, that’s all that matters.

You should definitely start funneling as much money as possible into your retirement accounts, such as 401(k)s, Roth 401(k)s, IRAs, and Roth IRAs. What if you reach the regular annual contribution limit? Good news – the IRS actually allows anyone age 50 or older to make “catch-up” contributions each year. For 2022, that means an extra $1,000 can go into an IRA (or Roth IRA) and an extra $6,500 into a 401(k) (or Roth 401(k)).

Additionally, you may consider saving in a Health Savings Account (HSA) which offers a triple tax advantage for healthcare costs, especially if your employer matches the contributions. However, this is a compromise; you’d have higher short-term medical bills, but you’d have a reserve of money to use for healthcare bills in retirement (plus, an HSA essentially becomes a de facto 401(k) at age 65) .

And don’t forget your debts. If you have high-interest credit card debt, pay it off as soon as possible. This will help you free up money for other financial priorities, like paying off your mortgage. Because if you can swing it, going into retirement mortgage-free will not only be a huge drain on your retirement budget, but it could also help you sleep better at night.

Here’s Allworth’s advice: since you’re playing catch-up, you may have to work longer than expected. But then again, maybe not. The best way to find out where you are now and how to reach your retirement goals is to work with a fiduciary financial advisor. He or she can handle the numbers, create a plan, and help you figure out your best strategy moving forward. We just encourage you to stick to this plan. Because researchers at Boston College’s Center for Retirement Research recently found that even though empty-nest kids have the best intentions, many don’t end up making up for lost time. Be sure to counter this trend.

Q: Peter in Morrow: What should I know about mutual fund expense ratios?

A: An expense ratio is an annual fee – charged to you by the mutual fund company – that is used to cover the costs of running the fund. These charges are in addition to any sales charges you may have paid when buying the fund and are disclosed as a percentage of your investment. For example, an expense ratio of 1% means you’ll be charged $10 for every $1,000 you invest. And even if you will not see this money withdrawn from your account since it is an “internal” expense, rest assured, you are paying for it. Also, keep in mind that “actively managed” funds that use a professional manager and research team typically have higher expense ratios than “passive” funds (like index funds and exchange-traded funds). ) that follow an index.

While we believe the expense ratio is a very important factor in choosing a fund, be careful not to get sucked into trying to pay as little as possible. Instead, Allworth’s advice is to ensure that the funds you buy give you the performance you expect after any internal expense and are tailored to your financial goals and in line with your overall financial plan.

Each week, Amy Wagner and Steve Sprovach of Allworth Financial answer your questions. If you or a friend or family member has a money problem or problem, please feel free to send these questions to [email protected]

The answers are provided for informational purposes only and individuals should consider whether the general recommendations contained in these answers are appropriate for their particular situation based on their investment objectives, financial situation and needs. To the extent a reader has any questions regarding the applicability of any specific matter discussed above to their individual situation, they are encouraged to consult with a professional advisor of their own choosing, including a tax advisor and/or attorney. . Retirement planning services offered by Allworth Financial, an SEC-registered investment adviser. Securities offered by AW Securities, a registered broker/dealer, Member FINRA/SIPC. Visit allworthfinancial.com/?c3=allworth-advice or call (513) 469-7500.

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