Here comes retirement … Are you ready?

That was fast! It seems like only yesterday you were starting your first job, and now you’re staring down retirement — ready or not. Unfortunately, many Americans near retirement age aren’t ready, not having saved enough to enjoy their post-work years in financial comfort. If you’re unsure about what you have and what you need, now’s the time to look closely at probable retirement income sources and, if necessary, catch up.

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Income inventory

Start by reviewing your income sources and assets. These might include:

  • Tax-deferred retirement plans, such as 401(k)s, traditional IRAs or simplified employee pension (SEP) plans,
  • Roth IRAs,
  • Social Security benefits,
  • Employer pensions,
  • A closely held business,
  • Money market accounts and CDs,
  • Nonretirement-account securities,
  • Life insurance policies and annuities, and
  • Real estate (excluding your primary residence).

Most retirees need between 70% and 85% of their working income to maintain their current standard of living during retirement. Your needs will be smaller if, for example, you’re planning to move to a less-expensive city but greater if you want to travel the world in luxury. Also consider fast-rising health care costs and whether you hope to leave money to your heirs.

You have options

If you’re concerned you won’t have enough money to retire, don’t despair. People age 50 and older are allowed to contribute greater annual amounts to tax-advantaged retirement plans to catch up. (See the sidebar “Making up for lost time.”) Slash your current spending budget to the bare bones so you can contribute the maximum amount.

Also, if you’d planned to retire at age 65, consider putting it off until age 70. You’ll have a few more years to make retirement plan contributions. Plus, putting off taking Social Security benefits until age 70 will mean larger checks once you do receive them. Another option is to work part-time during retirement for extra income and, possibly, benefits.

Don’t go it alone

Whether you’re self-employed or work for someone else, retirement marks one of the biggest financial milestones of your life. If you’re at all unsure about retirement income, seek advice from a financial professional. •

Making up for lost time

Those 50 and older generally are allowed to make “catch-up” contributions to their tax-advantaged retirement accounts. If you’re age 50 or older by Dec. 31, 2013, you may contribute as much as $23,000 to a 401(k) plan — $5,500 more than those under 50.

IRA contribution limits in 2013 are $6,500 if you’re 50 or older — though your maximum deductible contribution may be less if you or your spouse participates in a 401(k) or other employer-sponsored retirement plan. And if you’re self-employed, you might be eligible to set up a plan that allows you to make even larger contributions. Check with your financial advisor about eligibility.

Other articles in the August 2013 Edition of Business Matters: