1. Cut down on 401(k) contributions
When you reach 50, you are able to make catch-up contributions to your 401(k) and IRA accounts. The amounts you can add change periodically. For 2020, you may contribute up to $6,500 annually to a 401(k) and, if you’re over 50, up to $1,000 above the $6,000 annual limit to either a traditional or Roth IRA. If you have more than one IRA account, the total contribution cannot exceed $1,000.Also consider reducing or reducing your contributions. If you have credit card debt or a car loan or some other indebtedness, paying off that debt before retiring might be more important than building your nest egg. Remember that when you do retire, your savings would be your main source of income.
2. Dip into your IRA
You may begin withdrawing funds from either an IRA or a 401(k) account at age 59 and a half. If you are still working and your employer offers a 401(k), you can continue to contribute to it as long as you are eligible, but you must begin withdrawing funds when you reach 72. You cannot continue contributing to a traditional IRA once you reach 72. There are no similar age restrictions on Roth IRAs. Like in most other retirement savings accounts, the longer you can leave your savings untouched (or keep adding to them), the more you’ll have when those savings become your main source of income.
3. Consider leasing a car
First, consider whether you need a new or fairly new car at all. If you decide to acquire a new vehicle, you will notice that the down payment on a lease is typically lower and so are the monthly payments. After the lease term is up (usually three years), you can get a lease on a new car and begin the process again. Considering that it takes about five years to pay off a new car loan and you will be driving it payment-free for 10 or more years if you keep it for 15 years, buying a vehicle may be a better choice — though leasing may be the more affordable option for the short term.
4. Take Social Security
When you turn 62, you can start collecting Social Security retirement benefits. You get another opportunity at age 65 or later (depending on your birth year), and at age 70 you have to take it. In 2020, if you begin collecting benefits at age 62, the maximum monthly payment is $2,265; at 65 or later, the monthly benefit is $3,011; and at age 70, if you waited that long, the maximum benefit is $3,790. The standard advice is to wait as long as you can to take the benefit because your monthly income will be higher when you need it most, i.e., when you are older.
5. Take out a second mortgage
By federal law, lenders cannot discriminate against potential borrowers on the basis of age. If you need money and you are qualified for a loan, you should get it. However, taking on new debt once you retire and are living on a fixed income can be risky.
Reverse mortgages are one option to gain access to some money, but if your mortgage is paid off you might consider a home equity loan. If you still have a mortgage, a cash-out refinance is another option. While neither is technically a second mortgage, each serves the same purpose — turning the equity you have in your home into cash (actually new debt) that is secured by the house itself.
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