- 9 Simple Ways to Catch Up on Retirement Savings
- #1 Figure Out How Much You Need
- #2 Max Your 401(k) Contribution Limits
- #3 Fund an IRA
- #4 Put Your Future First
- #5 Don’t Be Too Conservative
- #6 Plan On Working Longer
- #7 Reevaluate Your Spending Habits
- #8 Take On a Side Hustle
- #9 Seek Independent Third-Party Advice ASAP
- Fastest Ways to Catch Up on Your Retirement Savings
- It’s Not Too Late
- 1. Look for Savings in Your Monthly Budget
- 2. Find Ways to Increase Your Income
- 3. Turn Your Home Into a Wealth-Building Tool
- 4. Push Back Retirement a Few Years
- Work With an Investing Professional
- 4 Ways To Catch Up On Saving For Retirement
- 1 – Know Your Expenses
- 2 – Play Catch-Up
- 3 – Delay Your Retirement
- 4 – Pay Off Your Debt
- It’s Not Too Late to Prepare for Retirement
9 Simple Ways to Catch Up on Retirement Savings
In Retirement Savings, Retirement Tips
If you’re in your 40s, 50s, or 60s, and you need to quickly catch up on retirement savings, don’t be discouraged. With planning and a focus on saving and investing, it is possible to make up for lost time.
#1 Figure Out How Much You Need
If you’re behind on retirement savings and don’t have a plan or you had one at one point, but are way off track, it’s time to get planning!
Some people avoid making a plan because they think their account balance isn’t big enough. For others, they think they are too close to retirement to plan at this point.
Whatever the case, if you don’t create a plan NOW, chances are, you aren’t going to have enough money to comfortably retire.
Or worse, you’ll end up with so little saved that you might have to struggle to survive.
From knowing how much you will need to retire to maintain your standard of living when you stop working to knowing exactly what you need to save each month, a plan will help you stay focused as you try and catch up on retirement savings.
If you need help, we suggest speaking to a third-party expert who can help you make the best decisions for retirement saving.
>Click here to understand the different types of financial advisor licenses and how they may affect the advice you get.
#2 Max Your 401(k) Contribution Limits
There is one way that may ensure you catch up on retirement savings and have enough to live on during retirement…make sure you contribute the maximum amount each year.
Even if you are in your 50s or 60s, it’s not too late to do what you can to save the most allowed, as it will greatly impact the amount you have at retirement.
In 2020, the annual contribution limit was raised to $19,500 for 2020 for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan..
For those age 50 and older, the 401(k) catch-up contribution limit will also increase $500–from $6,000 in 2019 to $6,500 in 2020.
This means if you’re 50 or older and need to catch up on retirement savings, you’ll be able to save $26,000 in your 401(k) in 2020.
Let’s assume you’re 51 years old, with $100,000 in retirement savings.
Because you’re over 50, you’re legally allowed to save $26,000 per year in a 401(k) retirement fund.
Now, let’s assume a 7% rate of return, and that you’re able to contribute the maximum to your 401(k) until you retire at the age of 70.
By retirement, you’d have roughly $1.3 million saved. However, this number does not take into consideration inflation.
Even if you can’t max out contribution limits, do whatever you can to try and stash as much away in your 401(k) as possible.
#3 Fund an IRA
Once you’ve maxed out your 401(k) or if you don’t have a 401(k), open an Individual Retirement Account (IRA) and maximize your yearly contribution.
For 2020, the contribution limit is $6,000. If you are over 50, the catch-up contribution limit is an additional $1,000, or $7,000 total.
#4 Put Your Future First
Even if you aren’t playing catch-up on retirement savings, it’s important to put your financial future first.
This means you should put your retirement savings ahead of your kids or grandkids college tuition, loans to family and friends, and even expensive gifts to your children.
Your kids or grandkids have plenty of time to save for retirement. Let them take out the student loan or find another way to raise the money needed.
Also, ensuring your financial retirement security means your children won’t have the burden of taking care of you later on in life.
#5 Don’t Be Too Conservative
If you’re in your 50s or 60s and close to retirement, being too conservative with your investments may be a missed opportunity for you to catch up on retirement savings.
Here’s the truth: market volatility can be your friend. And, if managed properly, it can build wealth.
There are two things that build wealth: time and consistency.
With retirement drawing closer and the need to catch up on your savings a top priority, time is not on your side.
However, if you invest consistently each pay period and if you rebalance your 401(k) each quarter, you’re ly to net more money when the market corrects itself instead of losing money.
A set it and forget it strategy and being too conservative creates underperformance over time. However, if you are rebalancing quarterly, you may be able to manage risk to minimize losses and capitalize on short-term market opportunities.
#6 Plan On Working Longer
Depending on how much money you must save to catch up on retirement savings, you may need to work longer so you can contribute more to your retirement savings.
Working longer also helps increase the amount of your Social Security check.
Social Security benefits take effect at age 62.
However, delaying retirement each year until 70 can increase your benefits 6% to 8% a year.
There are also downsides to taking Social Security too soon.
If you are 62, and eligible to draw benefits, you will only receive 75% of your benefits because you are under the full retirement age (FRA) of age 66.
Also, if you are still working full-time and make more than $17,640 in income in 2019, Social Security will penalize you for making too much money. One dollar in benefits will be withheld for every $2 in earnings above this limit.
To see what you might receive at different retirement ages, check out this Social Security calculator.
#7 Reevaluate Your Spending Habits
A Bankrate survey conducted in February 2019 shows that 40% of respondents aren’t saving for retirement because they have too many other expenses.¹
The same survey reported that 1 in 5 adults cannot cover their current monthly bills.
Living beyond your means and overspending can significantly set back your retirement savings plan.
And, if you carry the habit of overspending into retirement, itcan seriously hurt your retirement lifestyle.
It doesn’t matter how much money you make–whether you’re a $40,000 or $150,000 income household.
Overspending and lack of saving for the future plague all income brackets.
Curbing spending isn’t always as easy as it sounds.
We live in a culture of consumerism, and advertisements bombard us daily. It’s hard not to want to have the newest tech gadget or take a luxury trip your neighbors just did.
If you’re looking to catch up on retirement savings, we recommend taking it one step at a time to begin to form a new habit of living within your means.
The next time you are at the store or about to check out online, ask yourself if this is something you need or you want.
If it’s a want, don’t buy it right now. Instead, make a plan to save for it.
Also, sit down and review your spending and see what you can cut.
There are numerous online tools that track expenses for you. Some banks also offer this feature.
The benefit of these online tools is that you will be able to quickly evaluate where you’re putting your money.
With this information, you can decide what to cut back and, instead, put that money toward retirement savings.
If you sacrifice by choice today, you won’t have to sacrifice necessity later!
#8 Take On a Side Hustle
More and more Americans are taking on side hustles and using the extra income to save more for retirement or to pay down debt.
In fact, 76 percent of people over the age of 55 are using their side hustle income to boost their nest egg.²
Whether it’s tutoring a few hours a week or working weekends in retail, the extra income of a side hustle may make a big difference in your retirement lifestyle.
#9 Seek Independent Third-Party Advice ASAP
If you want to catch up on retirement savings, we recommend seeking third-party advice as soon as possible.
A May 2014 study conducted over a 6-year period compared those who had help with managing their 401(k) and those who did not. The study revealed…
“On average, the median annual returns for participants in the study who got help were more than 3% 4 (332 basis points, net of fees) higher than people who didn’t get help.”³
From the graph above, you can see getting expert help with your 401(k) or retirement savings can be beneficial to life at retirement.
Discover how to secure a solid financial future and potentially keep more of your hard-earned money. Download our no-cost guide 5 Mistakes You Want to Avoid with Your 401(k).
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Fastest Ways to Catch Up on Your Retirement Savings
We want you to hear us say this: It’s never too late to get started saving for retirement. No matter how old you are or how much (or how little) you have saved so far, there’s always something you can do. You can’t change the past, but you can still change your future. The fat lady hasn’t sung yet!
Only 37% of working adults feel their retirement savings are on track. Even more alarming, almost one every five Americans between the ages of 45 and 59 (17%) are barreling closer to retirement age with nothing saved for retirement at all.1
It’s time to wake up, people! But don’t let that alarm clock alarm you. We’re going to walk through a few ways you can catch up on your retirement savings.
First, a quick warning—there are about to be a lot of numbers thrown around, but in a good way! Ready? Let’s do this!
It’s Not Too Late
Okay, here’s what we mean when we say it’s not too late. Let’s say you’re 40 years old with a $55,000 salary and nothing saved for retirement.
We recommend you save 15% of your gross income for retirement, which means you should be investing $688 each month into your 401(k) and IRA.
If you did that for 25 years, you could end up cracking the $1 million mark at age 65. That’s right—you would be a millionaire!
Be confident about your retirement. Find an investing pro in your area today.
But what if you’re 45? Or what if you’re already in your 50s? Here’s where you can take advantage of your age, because a higher salary usually comes with it. People age 45–54 are hitting their peak earning years, with the typical household income running a little more than $84,000 a year.2 If you invest 15% of that, you’ll be putting away $12,600 a year for retirement!
If you stay focused on your retirement dream and continue investing that amount every month for 20 years, you could have more than $908,000 for retirement! That’s the power of time and compound interest at work.
1. Look for Savings in Your Monthly Budget
If you want to put more money toward retirement, you probably don’t have to look very far. Give yourself a goal to hit by choosing a specific dollar amount you want to save. Maybe sit down with your spouse or an accountability partner and look for $250 you can shave off your budget.
Here are some quick ways you can potentially save hundreds of dollars:
- Cancel subscriptions and memberships. Do you really need Netflix, Hulu and Disney+? Pick one and dump the rest! The same goes for those gym memberships and magazine subscriptions. And don’t get US started on cable—cutting the cord could free up more than $150 each month that could be used to save for retirement!3
- Cook meals at home instead of dining out. Americans eat out almost six times each week with diners spending an average of $36.40 per person at a restaurant.4 That means the average person is spending $182 each week! Cooking meals at home instead of eating out can save you hundreds of dollars each month. Your wallet—and your waistline—will thank you.
- Get a better deal on car insurance. When was the last time you shopped around for car insurance? If it’s been awhile, you might want to take a look. Those who do shop and end up switching insurance can save hundreds of dollars on their annual premiums. Have an independent insurance agent shop around for you to see what kind of savings you can get!
The list could go on and on. We're not going to lie: Cutting some things from your budget can be painful. You might need to give up your annual summer vacation to the beach or say “No!” when your friends want to go eat at that fancy restaurant. But remember, you’re making short-term sacrifices that will help you retire on your terms—and that’s worth fighting for. You can do this!
2. Find Ways to Increase Your Income
Your income is your number one wealth-building tool. We know you don’t want to hear us say this, but get a side hustle.Whether it’s delivering pizzas on nights and weekends or tutoring kids in math or English, there are hundreds of things you can do to make a little more money on the side. Who knows? You might actually have fun doing it!
Got an extra room? Rent it out! If your kids have gone off to college and flown the coop, maybe you can consider renting out that room for some extra income. You could also use that rent money to help you pay off your mortgage faster.
Get ready—we’re about to ask a math question. What could an extra $500 each month do for your nest egg? The answer is: a lot!
Let’s say Dan is 50 years old with $100,000 saved up for retirement. That’s better than nothing, but Dan still has a lot of work to do! Right now, he’s putting $300 each month into his retirement savings. At that rate, he’ll have about $653,000 saved up for retirement by the time he turns 65.
But if Dan takes on a side hustle or rents out his spare bedroom and starts adding an extra $500 to his 401(k) and IRA each month—bringing his monthly contributions to $800—he could have $880,000 saved up at age 65. That’s almost a quarter-of-a-million-dollar boost to his nest egg!
3. Turn Your Home Into a Wealth-Building Tool
You probably have a secret weapon to help you catch up on your retirement savings—and you might not even know it. In fact, you’re probably sitting in it right now. It’s your house!
In 2018, Ramsey Solutions conducted the largest research study of millionaires ever. Do you know what we found? It takes the average millionaire 10.2 years to pay off their home.
There’s a reason for that. Owning your home means you can enter retirement with a huge asset that’s separate from your retirement savings.
More importantly, getting rid of your mortgage allows you to supercharge your investing.
So, one thing you can do to catch up on retirement is focus on paying off your mortgage as fast as you can while you’re investing 15% for retirement. Let’s say you’re 45, making $73,500 a year and have a $1,000 monthly mortgage payment. For the next 10 years, you invest 15% of your income for retirement and commit to paying an additional $500 a month on your mortgage.
In that time, you could pay off a $145,000 mortgage while also building up your retirement savings to around $200,000.
Now you’re 55. The house is yours free and clear, but retirement is right around the corner. It’s time to put the pedal to the metal. You increase the amount you save each month by $1,000—your old mortgage payment amount.
Over the next 10 years, you could build your nest egg up over $1 million!
In 20 years, your retirement vision becomes a reality instead of a pipe dream. You’ve got a paid-for home and a more-than-decent nest egg waiting for you. And that happened by staying focused on your long-term goal and working hard to get there.
Having a paid-for house also gives you a second option. You could sell your home and use a portion of the proceeds to buy a new, smaller home with cash, then put the rest toward retirement.
4. Push Back Retirement a Few Years
Uh-oh. We can practically hear the grumbles from across the internet now. Now hear us out: If you feel you’re really behind, what if you kept saving and working until age 70? That gives compound interest five more years to do its thing, and those five years can make a world of difference.
Working longer is not an option for everyone, but if you’re in good health and enjoy your job, staying longer is a great choice—not only for your mental health but your financial health as well.
If you invest $800 a month from age 45 to 65, you could end up with close to $700,000 in your nest egg. That’s not bad! But if you stayed focused and kept working and investing for five more years, your retirement savings would potentially grow to $1.2 million. That’s compound interest working its magic!
Work With an Investing Professional
If you’re late getting into retirement investing, there’s still time to get back in the game. But it’s time to get intense and start putting habits in place that will help you get to where you need to go.
That’s why you need to work with an investing professional you can trust. Our SmartVestor program can connect you with an investing pro who can help you understand your options and come up with a plan to reach your retirement goals. It’s time to stop making excuses and start making progress!
Find a SmartVestor Pro in your area today!
4 Ways To Catch Up On Saving For Retirement
Your retirement is known as “the golden years” for a reason.
Traveling, relaxing, spending more time with family and friends…knowing that one day you’ll be able to choose whatever it is that you want to do is what keeps most of us working so hard day in and day out.
But what happens if you haven’t prepared for this important milestone and all the years that follow?
It’s never too late to put a strategic plan in place to prepare for a retirement you will enjoy.
Here are 4 ways you can catch up on saving for retirement:
1 – Know Your Expenses
We discuss this ALL THE TIME on our radio show, blog, and videos.
When preparing for retirement, you want to start by knowing your expenses. Without evaluating your living expenses, you may overestimate or underestimate how much you will truly need in retirement.
Not all retirement expenses are created equally. As you prepare for retirement, it is important to understand there are generally two kinds of retirement expenses:
ESSENTIAL: These are expenses you have to pay, such as your mortgage and other related home expenses, food, car bills/maintenance, healthcare, etc.
DISCRETIONARY: There are your “lifestyle” expenses, such as entertainment, travel, and other leisure activities.
A secure retirement is built on the foundation of having enough guaranteed income to meet your ESSENTIAL expenses. Of course, we all want to be able to LIVE THE LIFESTYLE of our choice, but we know at the very least that if we meet our essential expenses, we'll be able to sleep well at night.
This also allows you to see where you can cut back on your spending. Since you want to max out your retirement contributions and pay off debt (we'll get to the reason why in a minute), cutting back on unnecessary expenses will help you tremendously.
2 – Play Catch-Up
If you are preparing for retirement but haven't been paying attention to whether or not you have saved enough, it should be no surprise that you might have to find a way to play catch-up on your retirement savings.
If you do need to catch up, one of the first things you should look at is your current retirement account contributions.
If your company matches, make sure to max out your 401(k) account contributions every year leading up to your retirement. If you have the option, you may also want to consider maxing out your Roth IRA contributions, which will grow tax-free. (You also withdraw from a Roth IRA tax-free, so it’s a great way to supplement your income in retirement!)
You should also consider saving money in other places aside from a retirement account if you have already maxed out those options.
We're a big proponent of the “3 bucket approach” to retirement planning – having a liquidity bucket (cash to be able to access quickly), a bucket where you have a steady stream of income to cover your essential expenses (take a look at our After The Paycheck episode on choosing your distribution method in retirement), and a bucket focused on growth so you can keep up with rising costs (inflation, taxes, etc.).
For our clients, our 365 Retirement Plan process analyzes their unique situation and makes recommendations to make sure they are balanced in these three areas to help increase their probability of success in retirement. Upon implementation, every part of the 365 Retirement Plan is custom tailored and built to work every day of the year, so they won't have to.
3 – Delay Your Retirement
Use time to your advantage when saving for retirement. Every year that you delay your retirement and continue to make contributions to your retirement accounts, you are improving your retirement status.
Another option is to work part-time during your retirement, which lets you supplement your retirement income, so you aren’t solely relying on what you have saved.
Of course, if you are hoping to retire within the next five to ten years, neither of these are ideal; which is why it is very important to take action now and calculate your expenses to see if you actually WILL have income gap in retirement.
4 – Pay Off Your Debt
While saving for retirement, be sure you’re also paying off debt. Keep in mind that your current income may be more than your retirement income will be, so you want as much space in your budget as possible.
It’s Not Too Late to Prepare for Retirement
To experience an enjoyable retirement, you must prepare financially—at any age. In addition to completing the steps outlined above, to begin your retirement years in the best financial state possible, it is essential to speak with a financial advisor skilled in retirement planning.
Just as no two people are a, we believe no two retirement plans should be, either. Our 365 Retirement Plan Process is designed to create a personal relationship with you, taking the time to truly understand your unique personal and financial situation.
Call (617) 630-8787 or reserve time through our calendar to request your complimentary 365 Retirement Plan consultation. We'll take the time to create a customized strategy to help you pursue your retirement goals.