Repaid mortgage, paltry retirement savings: what to do
Dear Liz: My wife and I aggressively paid off our mortgage and now has it paid off, but we don’t have much savings for retirement. I earn approximately $ 90,000 per year and will receive a teacher’s pension that will replace between 30% and 60% of it (depending on the option chosen) when I retire in approximately 10 years. It will probably not be enough to live on. We will not receive any social security benefits. We have no other debts and want to make up for the time lost in preparing for retirement. What’s your best piece of advice for people like us who have diligently paid off their mortgage, but haven’t put some money aside for retirement?
Responnse: The older you get, the harder it is to make up for lost time with retirement savings. You probably can’t do this if retirement is only a few years away.
This is not to make you feel bad, but to serve as a warning to those who are tempted to prioritize paying off a mortgage over saving for retirement.
If you are in your 50s, you would typically need to save almost half of your income to match what you might have accumulated if you had only set aside 10% of your salary from your 20s. The miracle of funding means that even small contributions take decades to grow into huge sums. Without the time benefit, your contributions can’t go up that much, so you have to put more aside.
But you can certainly save aggressively and consider a few alternatives for your later years.
Once you turn 50, you can benefit from the opportunity to make “catch-up” contributions. For example, if you have a workplace retirement plan such as a 403 (b), you can contribute up to $ 26,000 – the regular limit of $ 19,500 plus an additional contribution of $ 6,500 for employees. 50 years and over.
You and your spouse can also contribute up to $ 7,000 each to an IRA; whether these contributions are deductible depends on your income and whether you are covered by an employer plan. If you are covered, your ability to deduct your contributions gradually decreases with a modified adjusted gross income of $ 105,000 to $ 125,000 for married couples who are filing jointly. If your spouse is not covered by an employer’s plan but you are, her ability to deduct her contribution gradually disappears with an adjusted gross income modified from $ 198,000 to $ 208,000. (All figures are for 2021.)
If you can’t deduct the contribution, consider placing the money in a Roth IRA instead, as withdrawals from a Roth are tax-free in retirement. The ability to contribute to a Roth IRA is phasing out with adjusted gross income changed between $ 198,000 and $ 208,000 for married couples filing jointly.
If possible, a part-time job in retirement could be extremely helpful in making ends meet. The same goes for downsizing or exploiting the equity in your home with a reverse mortgage. A fee-based financial planner can help you sort out your options and help you determine the best way to retire when the time comes.
When credit scores are good
Dear Liz: I was once told that the reason my credit score was not higher was an insufficient credit history. Now I’m doing what you recommended by charging monthly security alarm service on one credit card, weekly church donation on another, and satellite TV on a third. All are paid monthly. I checked my credit score recently and read that the reason my score isn’t higher is that I now have too many cards with balances. My score is around 860 but the comment concerns me. Should he?
Responnse: Most credit scores are on a scale of 300 to 850. If your score is at or near the top of that range, you are doing fine. Scores over around 760 usually get the best rates and terms from lenders (the threshold is often 740 for mortgage lenders). Higher scores allow you to brag.
Services that provide you with credit scores often give you automated reasons why your scores are not higher. These messages can be useful when trying to create or replenish credit. The higher your scores, however, the less useful these posts seem to be. Even if you could fix the “problem” they are reporting, there is no guarantee that your scores would increase.
Liz Weston, Certified Financial Planner, is a Personal Finance Columnist for NerdWallet. Questions can be directed to him at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.