Generation X is hitting middle age. That reality may bite, but the good news for members of Gen X is there is still plenty of time to boost their retirement security.
While tax laws and Social Security rules may change by the time Gen Xers reach their golden years, the one thing that is certain is that saving aggressively for retirement now can help smooth the ride. If you haven’t already been collecting enough coins along the way, you can supercharge your efforts so that when you get to the end of the working game, you’ll be at the top of the leaderboard.
Here are seven strategies to get you there. Take a look.
Rein in Lifestyle Creep
As you hit mid-career, chances are you have built up some assets and are making more money than ever before. And with that boost in pay comes the temptation to loosen your grip on spending and have some fun. You may be taking more trips, or buying a fancier car, or jumping up to a more spacious house. No worries … you’ve earned it.
But be careful not to go overboard. It’s easy for your cost of living to stealthily creep up as your salary goes up. “Gen Xers are at risk of falling into a lifestyle creep trap. As their income increases and they become more established, lifestyle expenses get added on, year over year,” says Neal Van Zutphen, president of Intrinsic Wealth Counsel, in Tempe, Ariz.
Review your budget, and track your spending for a month or two. To boost savings, see where your spending is out of whack. For those who have a full house with kids, a lot of your spending likely isn’t even for yourself, but take a look at where expenses might be shaved in that category. Regardless of where the money is going, don’t assume that your earnings will just continue to climb as your expenses do. If you hit a bump in your career track, spending as much as–or more than–you earn will get you in trouble quickly.
It’s time to start eliminating debt you’ve accumulated in your early adulthood. Pay it down aggressively, advises Cary Carbonaro, managing director of United Capital Financial Advisors, in Clermont, Fla. After all, the less you eventually put toward debt, the more you can put toward building assets.
Which debt to tackle first? Top candidates include debts with high interest rates and debt that isn’t tax-deductible–namely, credit card debt, medical debt and car loans. “Paying off high-interest debt gets you an immediate return, and it frees up money to save or invest elsewhere,” says Ryan Fuchs, a certified financial planner with Ifrah Financial Services, in Frisco, Texas. Then turn your attention to any outstanding student loans, and then a mortgage.
If you’re overloaded with credit card debt, search for a 0% interest rate offer. You’ll pay off your debt faster if you aren’t racking up interest at the same time. Also, make a plan to pay off expenses every month, or switch to using a debit card or cash, instead of using credit to pay.
Whittle Down the Mortgage
Housing is often the biggest expense in your budget, particularly if you own your living space. Principal, interest, property tax, insurance, maintenance and any housing association fees add up quickly. If you’re looking to become debt-free, consider boosting your principal payments. The faster you pay off the loan, the less interest you’ll incur along the way.
There are a couple of ways you can pay off your loan quicker. You could refinance into a shorter-term loan if that will also drop your interest rate by a percentage point or more. Brad Rosley, founder of Fortune Financial Group, in Glen Ellyn, Ill., suggests getting a loan term that matches your expected retirement year. Or instead of paying the cost to refinance, make an extra mortgage payment for the year or pay bimonthly, says Carbonaro. Or add a bit extra each month and direct it to the principal.
Check Your Emergency Fund
An emergency fund can help you stave off credit card debt when an unexpected expense pops up, and it can keep you from tapping other assets, such as a retirement account. As your salary climbs, so too should your emergency fund. It’s a good idea to have at least three to six months’ worth of expenses in a liquid account, such as a savings account. Gen Xers who built an emergency fund based on their income and expenses in their twenties or thirties may find it insufficient to pay the bills today in the event of a job loss.
If you’ve had to dip into your emergency kitty to cover a cost, add a line item in your budget to fill it back up.
Review Insurance Protection
Hitting middle age is a good time to review your insurance policies. In some cases, you might be able to trim your costs. (In fact, columnist Kim Lankford suggests more than a dozen car-insurance discounts you might qualify for.) If your kids are grown and about to enter the workforce themselves, maybe you can trim your life insurance.
But you may need to boost coverage in other areas. You may have nicer things than you used to have, and might need to add a rider to your homeowners insurance to cover diamond jewelry or expensive home electronics.
Other policies can help cover you if a severe event strikes: Since you’re likely headed into your peak earning years, consider getting a disability insurance policy. If you end up out of work as a result of a major health crisis, this insurance will help you cover your costs and protect your financial security. Also consider buying long-term-care insurance in your fifties–the premiums will be cheaper, and the policy will protect you if you need care when you’re older.
Mix in a Roth
If you don’t already have a Roth account in your portfolio, consider adding one for tax-free income in retirement. You can either make after-tax contributions to a Roth IRA or convert traditional IRA money to a Roth IRA if you make more than the income limits for direct Roth contributions.
Another option: See if your employer offers a Roth 401(k). The money will go in after-tax, but you can contribute a higher amount to a Roth 401(k), and there are no income limits to contribute. You can also choose to split your contributions between a traditional 401(k) and a Roth 401(k). “This way, you will have more flexibility in retirement to withdraw from either taxable or tax-free assets depending on what makes sense given the tax laws in effect at the time,” says Howard Pressman, a certified financial planner with Egan, Berger and Weiner, in Vienna, Va.
Catch Up on Your Nest Egg
Ideally, you’ve been contributing as much as 15% or more of your income to your nest egg for years, or maybe even maxing out your 401(k) contributions. But if you haven’t, start now: The earlier you can put more money into your retirement nest egg, the longer it’ll have to grow. Those younger than 50 can contribute as much as $18,000 into a 401(k) and as much as $5,500 into an IRA in 2016.
But in the year you turn 50, you can start to turbocharge your retirement savings with “catch-up contributions.” Those who are 50 and older can put in an extra $6,000 into a company plan and an extra $1,000 into an IRA. “A greater tax deduction matched with greater savings can help supercharge one’s retirement just in time for the home stretch,” says Randy Bruns, a certified financial planner with HighPoint Planning Partners, in Downers Grove, Ill.
Maxing out at the higher limits can be a boon to late starters: Say you are starting with nothing at age 50. If you max out every year at the 2016 limit for the next 20 years and the money grows 6% a year, you’ll have a nest egg of just over $880,000.