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4 ways to catch up on retirement savings

  • It’s common to fall behind when it comes to retirement savings, but there are plenty of ways to close the gap.
  • Consider other investment account options beyond typical retirement vehicles like your 401(k) and IRAs.
  • Reducing discretionary spending and paying down debt can free up more money to meet your retirement goals.

For most workers, retirement savings are found in the 401(k), Individual Retirement Account (IRA), or other defined contribution plans that don’t provide a specific amount of benefit in retirement like the do the pensions.

These plans need to be funded over time by regular contributions, and the money available after retirement depends on how much money is in them when you’re done working. Starting early and maintaining regular contributions throughout your working life is crucial as the earnings from your savings are reinvested to generate their own income. This produces a snowball effect that can dramatically boost your nest egg growth through a principle known as compounding.

Falling behind on your contributions can have a significant impact on the income you will have in retirement. But there are a few tactics you can use to catch up and get back on track.

4 ways to catch up on your retirement savings

1. Reduce discretionary spending or increase your income

The first step to getting yourself back on track is to carefully consider where you’re spending money now, with a view to cutting out the things you don’t necessarily need and using those funds to bolster your retirement savings. If you think your budget is already too tight and there are no areas that could be cut, consider ways to increase your income.

Although taking up a side hustle is a way to earn extra money, you can see even more benefits from changing jobs. The data of the


Federal Reserve

Bank of Atlanta shows that for more than a decade, those who changed jobs consistently saw their wages increase faster than those who stayed with their employer. This impact of salary growth can be further amplified if the new employer offers matching contributions to your 401(k) on this higher salary.

Taking inventory of your expenses can also be a good opportunity to see how much of your income could be spent on your debt. If you can develop a plan to pay off the debt, it will be easier for you to maintain your lifestyle in retirement.

“Without debt, your retirement expenses will be more manageable and you can use the money you were spending on debt to save for the future,” says Jay Zigmont, CFP® professional and founder of financial planning company Live, Learn, Plan.

Keep in mind that this is not an “either or” situation when looking to pay off debt and invest for your retirement. In most cases, you’ll want to strike a balance between the two, especially if you’re late.

2. Fully fund your retirement accounts, including the catch-up contribution

To reach your catch-up goal, you will likely need to fully fund your retirement accounts. In many cases, this would include your 401(k) if you work in the private sector or 403(b) if you work in the public sector. But you have the option of contributing even more from age 50, making it a crucial part of retirement planning.

“The big thing is the catch-up factor built into pension plans,” says Max Pashman, CFP® professional and owner of Pashman Financial LLC. In 2022, you can contribute up to $20,500. If you’re 50 or older, you invest an additional $6,500.

In addition to these options, you can use your Individual Retirement Account (IRA). For a Roth IRA and a traditional IRA, the contribution limit for 2022 is $6,000, with an additional $1,000 allowed for people age 50 and older.

“As you get closer to your retirement years, if you’re 10 years away or even less, you really want to analyze whether you’re underfunded,” says Pashman. “And if you are, you want to take advantage of those catch-up contributions.”

Depending on your income, you can contribute to a 401(k), a Roth IRA, and a traditional IRA simultaneously. However, if you contribute to both a Roth IRA and a traditional IRA, the limit is still $6,000 combined, $7,000 if you’re 50 or older.

3. Invest beyond your retirement accounts

What if you’re still behind after maximizing your retirement account? Although it may seem a bit counterintuitive, your non-retirement assets like a taxable brokerage account can be a powerful tool to use when saving for retirement.

Taxable brokerage accounts do not have income or contribution limits like accounts designed specifically for retirement. Because there’s no limit to how much you can contribute, a taxable brokerage account is another way to invest if you’ve maxed out in other areas. Taxable brokerage accounts also do not have the same tax benefits. However, these types of accounts can allow you to invest and withdraw without penalty.

Having a combination of funds with different tax statuses is known as tax diversification. This concept can provide some flexibility in retirement when you are ready to start withdrawing.

4. Consider adjusting your retirement schedule

If you like your job but are just a little behind, you could adjust your retirement schedule and work a little longer to accumulate more for retirement.

Delaying your retirement date can also increase the amount you receive in Social Security benefits. “Social Security plays a big role in your [retirement] needs,” explains Pashman. Those who may not be as late may be more flexible about delaying Social Security, while those who need the income sooner will have to approach the situation differently.

Under the current rules, if you were born between 1943 and 1954, you will receive 100% of your monthly benefit at age 66. But if you delay taking the benefit, you can receive a higher payment that caps at age 70 at 132%.

If you’re considering working longer to save more and delay Social Security, consider talking to a financial planner to help you make those decisions. The decision on when to take Social Security will depend on your expected retirement income.

“It will ultimately depend on your financial situation in your early retirement years,” says Pashman. “It boils down to what your monthly cash flow projection will be for the early retirement years ahead.”

Remember that retirement is not the end

Reaching retirement doesn’t mean you have to stop investing. In fact, there are several ways to make up for a shortfall even after deciding to quit your full-time job. One of them is to take a part-time job.

“A half-time job at minimum wage equals about $150,000 more in retirement savings,” says Warren Ward, a CFP® professional at WWA Planning & Investments.

How is a part-time job worth $150,000 in retirement savings? In retirement, a rule of thumb is to withdraw 5% from your accounts each year to replace your salary. This would mean that it would take $150,000 to produce $7,500 annually in retirement. If you could get a part-time job in retirement, you could offset the need for an extra $150,000.

There are also opportunities to continue investing after you reach retirement to continue producing income if you don’t need the money to meet your immediate needs. Certificates of deposit (CDs), annuities, bonds and high-quality dividend-paying stocks are some of the most popular investment assets for retirees.

The important thing to remember is that if you’re behind on your retirement savings schedule, you have a range of options. The key to catching up is being flexible in adjusting your plan and finding the right combination of strategies to help you reach your goal.

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