“Woe is Me” is the cry for the baby boomer that now realizes that they haven’t saved enough for retirement. Most don’t even consider retirement in the their early working years, but around the age of 50 is when the little bell goes off that rings, “You need to start saving yesterday”. For those hearing that ringing, 2009 might give them a chance to “catch up”. The 401k contribution limits have increased for 2009allowing procrastinating baby boomers a chance to get back on track in saving for retirement.
New 2009 401k Contribution Limits
The 401k contribution limits jump up to $16,500 for 2009. If you are financially able, being able to sock away $16,500 pretax is sure fire way to get on the fast track to a successful retirement. But what about the late starters?
Boomers Catch Up
For those Boomers that got a late start saving for their retirement, the “catch up” provisions have increased as well. The catch up contribution allows individuals over the age of 50, to contribute the base amount of $16,500 plus a “catch up” of $5,500 for a total contribution of $22,000. For all the procrastinators out there, this gives them an excellent opportunity to grow their retirement nest egg to a respectable level.
Some Simple Math
For somebody that just turned the age of 50 and now realized they are way behind in their retirement savings here’s your chance, finances permitting. Let’s assume that the $22,000 contribution limits stays constant for the next 10 years (although we know that it’s adjusted for inflation in $500 increments after 2010). Let’s also assume that we earn a 5% rate of return net of inflation over that time period. That would give us a lump sum total of $279,291. Is that enough to last us through retirement? Most likely not, but keep in mind that in this example we’re assuming that you haven’t saved anything at all. If that really is the case, then we should probably be caring this example out for 25 years not 10.
In conclusion, this is a good opportunity for boomers to catch up. Make sure you take advantage of this increase as much as you are financial able.