Late to the Game? How to Ramp Up Retirement Investing in Your 40s and 50s

Maybe you looked in the mirror this morning and found a new crinkle on the face staring back at you. Doubtful, however, that your very next thought was: "Boy, am I way behind in retirement savings."

The reality is, like any anti-aging regimen, retirement planning takes regular maintenance. We often skip a few preventative measures on both fronts.

[See Saving for a Comfortable Retirement.]

For some individuals, there's not all that much to maintain. They've put off investing for retirement because of financial hardship, they spend too much, or they put all their efforts into their kids' college savings.

It's never too late to get started or to find new ways to grow anemic savings. But that begs the bigger question: How aggressive should you be in your 40s and 50s as you look to ramp up your retirement plan?

Before considering how to invest, it's important to think about how you're generating that money. Are there more ways to save? Depending on your retirement goals, you might need to be saving more than 20 percent of your income in your 50s, say advisers at Wells Fargo. Before that, 10 to 15 percent is a common benchmark. Some advisors want to toss all percentage guidelines out the window. In general, the more you can save and invest, the better off you'll be.

• One of the best ways to extend your retirement savings is to plan to work longer. Consider that the maximum Social Security benefit at age 62 is a tad over $1,800 a month. If you hold off claiming Social Security until age 70, your monthly benefit jumps about 75 percent, to almost $3,200, according to Social Security Administration data. Not only will waiting to collect that gold watch potentially allow you a heftier government payout, it means your own nest egg can continue to grow. But working indefinitely may not only cut into your grand travel plans, it may be physically impossible. More options are necessary.

• Work aggressively toward eliminating high-interest revolving credit, like credit cards or unsecured loans. A consolidation loan may help lower interest rates and it's easier to manage.

• Make sure you're taking full advantage of tax-beneficial 401(k) or other employer-sponsored retirement plans and if available, any matching incentives. Receive a bonus? Earmark it for your retirement savings. If you feel your company plan isn't enough, if a plan isn't not part of your benefits package, or if you work for yourself, taking advantage of the tax benefits of an IRA is crucial. You are allowed extra "catch-up" contributions to IRAs and 401(k)s in your 50s. For traditional and Roth IRAs, the catch-up amount is $1,000 above the standard limits, which are now annually indexed for inflation. For most 401(k)s, the catch-up amount is $5,500 above the contribution limits and indexed for inflation in subsequent years.

[See Does an IRA Still Make Sense?]

What's the difference? For a Roth IRA, you contribute after-tax funds. The contributions are limited to $5,000 per year, but they are increased to $6,000 per year if you're over 50. Once you are 59½ years of age, and the funds have been in the account for at least five years, the money can be withdrawn tax- and penalty-free. You can keep your account active indefinitely, allowing it to grow. Contributions to a traditional IRA are tax-deductible at the outset. Once you access the funds after age 59½, you will need to pay taxes on the amount you withdraw. The funds must be withdrawn before you turn 70½ to avoid penalties.

• If you haven't already, consider the pros and cons of additional life insurance and long-term care insurance or annuities, which guarantee income later in life.

• Take a look at your house with new eyes. There may be an invaluable emotional connection and you may still have minor children at home that you don't want to uproot. But at some point, if you can detach yourself from the sentiment, changing your relationship with your house now may go a long way toward financial security later. Even if your house is paid for, if it's too expensive to maintain, it may be a burden. You might consider selling your home and downsizing to a smaller, more affordable property with minimal upkeep. Pay off your mortgage early, then turn that savings into retirement funding.

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