Making Up for Lost Time
Regardless of how old you are, you can still save some money for your retirement, thanks to the government's catch-up provision, which allows you to save more money in a retirement account when you're over 50 than when you were younger.
You may also be able to use the equity you've built up in your house to fund part of your retirement. The following two sections share some details about each option.
Using the Catch-Up Provision
If you're over 50, you're allowed to put away more tax-free income per year than your younger counterparts. For example, while the standard contribution to both traditional and Roth IRAs is $5,000 per year (subject to income limits, of course), anyone over 50 can contribute $1,000 more than that.
Your company's 401(k) plan has similar provisions, allowing you to contribute more than younger workers. This is called a catch-up provision, and it's meant specifically for people who started saving for retirement later in life.
Using Your House to Help You Retire
If you haven't made many provisions for your retirement and can't seem to find the money to do so, you may be able to tap the value of your house for your retirement.
Suppose you're 45 years old and have 15 years left to pay on your house. You bought the house 15 years ago, and home prices have risen significantly since then. Your house is worth $240,000 now and will likely be worth over $450,000 when you turn 60 and the house is paid off.
Rather than staying in the house during retirement, you can sell it and move to a smaller house or condominium that costs far less. If you can sell your house for $450,000 and buy a condo at that time for $300,000 or $350,000, you'll have $100,000 to $150,000 to add to your retirement account.
If mortgage interest rates drop to one point or lower than the rate on your mortgage, consider refinancing. You may be able to get a shorter loan length (say, 15 years instead of 30) for the same monthly payments. This can enhance your ability to use your house as part of your retirement plan.
On the other hand, you can stay in the house and get a reverse mortgage on it as soon as you begin needing income (say, when you turn 65 or 70).
Essentially, a bank buys the house back from you, except that you continue to own it and live in it. You must be at least 62 and own the house free and clear.
The bank then either sends you monthly payments or gives you a lump sum. You'll pay a fee for this service because if you live longer than the bank thinks you're going to live, they may actually lose money on the deal. Still, many lenders offer this option.
