Retirement: Never too Late to Plan

By: Lawrence Pon, CPA/PFS, CFP, EA, USTCP, AEP

***Editor’s Note: The following article is one viewpoint on retirement saving. On 
August 28, another viewpoint was published in the article “
Retirement: Never too Early to Plan.

Retirement was always in the back of my mind, and now it is on the horizon.

As we get older, life may seem to get in the way and prevent us from socking away money for retirement.

Yet, it’s never too late, so here is what you need to do.

Keep working. When you are in your fifties, you are supposed to be in the highest earnings potential in your career.

When you are working, your Social Security benefits increase. Assuming you are in and expect to be in good health, it makes sense to wait to claim your Social Security benefits. If you claim your Social Security benefits early, you will be subject to a permanent discount.

Keep working so you have access to employer provided health care. Healthcare is a huge topic with an even larger cost that is beyond the scope of this article.

Contribute the maximum to your employer retirement plans. For 2018, that amount is $24,500. If you are married and both of you are working, you can contribute $49,000 to your retirement plans per year.

There is no negotiation here — you have to maximize your retirement plan contributions. Say no to your friends and family who ask for money. You and your immediate family must be your priority. Review your cash outflows and look for places to plug the leaks. Spend wisely.

Contributing to your retirement plan is the easiest way to reduce your tax bill. You get a tax deduction when you put money in your retirement plan. Also, the assets in the retirement plan grow tax deferred.

You do not pay taxes on your retirement plan until you take money out of it, but at that point you may be in a lower tax bracket. This allows the money to grow tax deferred and you get a deduction at a higher tax bracket, but then pay tax at the lower tax bracket. This is called tax leverage. Take advantage of it!

Another benefit? Your employer may be matching your contributions. This is free money!

We should heed Ben Franklin’s sage advice. Just think of all the fun you already had if spent a lot of money on clothes, ate at expensive restaurants, taken overpriced vacations, bought a car that is outside your price range, and paying too much for your housing. It is now time to hunker down and focus on your retirement savings. You can have a lot of fun and eat well at a lower and reasonable cost.

Lawrence Pon is a CPA and Financial Planner for Pon and Associates located in Redwood Shores, CA. He received is MS in Taxation from Golden Gate University and BS in Business Administration from UC Berkeley. He helps his clients reach their financial goals through comprehensive tax and financial planning, tax preparation, and representation. The opinions in this article are presented in the spirit of spurring discussion and reflect those of the author and not necessarily the treasurer, his office or the State of California.