Dear Liz: After nine months of unemployment I finally landed a new job, but at half my former $100,000 salary. In this economy I was happy to get it. I always contributed the maximum to my 401(k) and employee stock purchase plan, but my new company does not offer either of these options. I made it through my period of unemployment on severance, savings and belt tightening. Other than a mortgage, I have no debt. I realize I need to both catch up on missed contributions and continue to put away money for retirement. I just turned 60. What is my best move for continued retirement saving? And how will my reduced salary affect my future Social Security benefits?
Answer: You don’t need your employer to help you save for retirement, fortunately. Since you’re over 50, you can contribute $6,000 to an IRA or Roth IRA annually. You can open an account at virtually any bank, brokerage or credit union. Look for one that doesn’t charge you account service fees and that has a broad array of low-cost investment options. Vanguard, for example, waives its service fees for IRA investors who sign up for electronic statements.
If you’re able to save more, you can do so in a regular, taxable brokerage account. You won’t get a tax break for your contributions, as you would with a traditional IRA, but you can qualify for low capital gains tax rates if you hold your investments for at least a year.
Your Social Security benefits will be based on your 35 highest-earning years. The Social Security website (http://www.ssa.gov) has a benefits calculator that enables you to see your estimated future benefit based on your work record so far, and that enables you to create different scenarios — such as a lower salary going forward, or different retirement ages — to gauge their effect on your future checks.