Retirement savings is something that many people struggle to keep up with. According to a 2019 survey by Northwestern Mutual, over 4 in 10 Americans expect to retire later than they originally planned. There are many reasons why people fall behind on How to catch up on retirement savings, from job changes to financial hardships. The good news is that it’s never too late to take steps to catch up and improve your retirement outlook. Here are some tips on how to catch up on retirement savings if you feel behind.
Assess Where You Stand
The first step is to assess where you currently stand with retirement savings. Add up the totals in all of your retirement accounts like 401(k)s, IRAs, and others. This will tell you how much you have saved so far.
Next, estimate how much income you will need in retirement. Generally, you will need 70-80% of your current pre-retirement income to maintain your standard of living. Use that figure along with expected Social Security benefits and pension income to calculate your total needed How to catch up on retirement savings.
Subtract your current savings from the total needed. The difference is your retirement shortfall that you need to make up.
Increase Contribution Rate
Once you know how much more you need to save, find ways to increase your contribution rate to retirement accounts. Some options:
- Boost 401(k) contributions: Increase the percentage you contribute from your paycheck. Even 1-2% more can make a difference over time.
- Contribute to IRA: Max out contributions to a Roth or Traditional IRA, up to $6,000 per year ($7,000 if 50+).
- Cut expenses: Reduce spending on discretionary items to free up money to save.
- Shift assets: Move funds from regular investment accounts into tax-advantaged retirement accounts.
Make Catch-Up Contributions
If you are age 50 or over, take advantage of IRS catch-up contributions that allow you to put away more in retirement accounts each year:
- 401(k) plans: $6,500 catch-up contribution allowed in 2023.
- IRAs: $1,000 catch-up contribution allowed in 2023.
- 403(b), 457, SARSEP plans: $3,000 catch-up contribution allowed in 2023.
Use these provisions to supercharge your How to catch up on retirement savings as you near retirement age.
Change Asset Allocation
As you get closer to retirement, your asset allocation should become more conservative. Shift some funds from stocks into safer investments like bonds and cash equivalents. This helps lock in gains from your stock investments and prevents market swings from depleting your savings as retirement nears.
At the same time, don’t be too conservative. You still need stock exposure for growth potential. Aim for an asset allocation ratio something like this in the years leading up to retirement:
|Years to Retirement||Stocks||Bonds/Cash|
Delay Social Security Benefits
You can increase future Social Security payments by delaying when you start taking them. Each year you wait past your full retirement age (typically 66-67 years old) boosts payments by about 8%. By waiting until age 70 to take benefits, you can receive 132% of your full monthly payment.
Delaying Social Security lets you tap How to catch up on retirement savings early while waiting for larger Social Security checks to start. This can help bridge a savings shortfall.
Reassess Spending Needs
Take a fresh look at your planned retirement lifestyle and spending needs. You may be able to adjust and cut back on certain costs. For example, downsizing your home, driving older cars, reducing travel and entertainment budgets, or moving to a lower cost area. Trimming spending by just 10-20% could significantly lower the amount you need in retirement savings.
Another option is to work a few additional years before retiring. This allows you to continue adding to retirement accounts as you draw less from them. Working just 2-3 more years can boost How to catch up on retirement savings and allow your investments more time to grow.
Consider Retirement Options with Less Savings
If you are far behind on savings and unable to fully catch up, some alternate retirement options include:
- Working part-time in retirement for extra income
- Renting extra rooms in your house
- Moving in with family to share expenses
- Relocating to a country with lower costs
- Using home equity via reverse mortgage
While not ideal, these options can help bridge the gap if you are facing a severe savings shortfall. The key is being realistic about your savings outlook as you near retirement age.
Get Help from a Professional
If you are struggling to figure out how to catch up on How to catch up on retirement savings, get help from a professional financial advisor. They can review your specific situation and develop a financial plan to put you back on track. Many advisors charge hourly rates or fixed fees for financial plans rather than a percentage of assets. This can make them accessible even for those with lower savings balances.
Make Catching Up a Priority Now
The key takeaway is to make catching up on retirement savings a priority as soon as possible. The more time you have before retirement, the easier it will be increase contributions and investment returns. As you get within 10 years of retirement, options become more limited. Act now to assess where you stand, make a plan, and start putting away as much as you can reasonably afford. Consistent savings, compound returns, and smart planning can help put you in a better retirement position.
Falling behind on saving for retirement is common, but it’s never too late to take action. Make a detailed assessment of how much you have versus how much you will need. Then utilize all available methods to increase contributions and returns on investments. Consider ways to trim retirement spending or work longer as well. Getting help from a financial advisor can provide guidance tailored to your situation. The sooner you start catching up, the better your outcome will be. With a proactive approach, a shortfall can still be overcome with discipline and focus on increasing How to catch up on retirement savings as much as possible in the coming years.