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How to play catch-up with your retirement savings

When Linda Leconte moved to Dallas last year, in part to be closer to her family, the 51-year-old New Yorker was ready for change. She lived with a roommate and earned just enough as a technical sales associate at a lighting design company to continue paying off the student debt she incurred as a returning student in her mid-thirties and by contributing a small monthly amount to a Roth Individual Retirement Account and a Health Savings Account.

Leconte says that by leaving town, she had saved about $100,000 between those two accounts and a 401(k) from a previous job, but she felt she needed at least three times that amount just for future healthcare costs. The move, she hoped, would help her reduce her monthly expenses so she could start saving more. “I always felt like I made it in the city,” says Leconte.

While Leconte is doing better than many others his age, a lack of retirement savings threatens millions of workers. According to a recent Sagewell Financial survey, about 1 in 4 Americans between the ages of 55 and 65 say they have saved $50,000 or less for retirement.

The good news, say financial advisors: it’s not too late to build your savings. For starters, the government is encouraging savers over age 50 to make catch-up contributions into tax-deferred 401(k) accounts and individual retirement accounts. Beyond catch-up contributions, advisers say, building retirement savings will depend on realistic expectations and what you’re willing to do to get there.

“If you want to save more money in retirement – and that will be true whether you’ve saved a million dollars and think you should have five, or you just turned 50 and don’t only $50,000 – you have a few options,” says Andrea Hamilton, wealth management advisor at Perigon in San Francisco. “You can earn more money. You can work longer and retire at a older age, and you can spend less to save more.

Budget and boost your savings

“Ignorance is no bliss in personal finance,” says Dan Ludwin, president of Salomon & Ludwin, a financial advisory firm in Richmond, Virginia. “You need to have tough conversations about your financial situation, start exploring different scenarios, like at what age you want to retire and how much money you’ll need each month, and then come up with a plan.

For example, if you think you want to retire at 67 and expect to need $6,000 a month for expenses, then you need to assess your current holdings, consider what you spend your money on, and then create a Monthly Budget. and an investment plan based on this information and your retirement goal. “If you don’t think you can get to that level, you have to adjust the levers. Maybe you’ll have to retire at 70 instead or find a way to live on $5,000 a month,” says Ludvin.

By working longer, he adds, you should be able to keep your savings and possibly delay Social Security payments, which increase each year if not claimed from age 62 to 70.

And when you’re digging into your expenses, it pays to account for everything, adds Hamilton. “You have to skip the most expensive items, like your mortgage payment, your car payment, and your insurance, and look at literally every item that comes in and out of your bank account every month,” she says. Then you can start making cash adjustments you can live with, she says.

Finally, you may need to make big changes in your life, such as downsizing to a smaller home or finding a home in an area with a lower cost of living. For Leconte, moving from New York has made a noticeable difference to his spending habits. Although her rent is more in Dallas because she lives alone, the amenities offered in her new place mean she can spend more time entertaining at home and less time hanging out like she did in New York. In addition, the apartment provides access to a gym and a swimming pool, so she was also able to reduce her costs. She estimates a total savings of about $500 per month.

Increase your income and investments

Finance professionals say the easiest way to earn more income is to ask your employer for a raise, or use your skills to find a position that demands more pay or add side work.

This is what Leconte did. Although she was able to keep her job and work remotely from Dallas, she got into social media management for a former employer. “I use this income to pay off my student loans,” she says.

Also key: Make sure you know how much you need to earn so you can be selective about your next move, says Marguerita Cheng, CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland. “I had a client who was fired at around 60. After reviewing his finances, I told him that although he would continue to work for several years, he did not need to earn as much as before. It gave her great peace of mind and allowed her to find work that wasn’t as stressful or demanding,” she says.

It’s also possible to adjust your investments to increase your rate of return, but “nobody should take more risk than they’re comfortable with,” says Cheng.

To get started, you need to consider how much fixed income you currently need and how soon you’ll need to get the rest of your money, which will help determine how much risk you can take with your portfolio, says Hamilton. . In other words, the longer your horizon before you dip into some of your funds, the more aggressive you can be with your investments. “The money you need now should be invested without risk. But if you think you won’t need the rest of your funds for 30 years, you might consider a higher risk investment,” she says.

When it comes to investment products, Ludwin says he generally recommends low-fee exchange-traded funds “because cost absolutely matters.” Annuities can also be a good choice for some people, although advisers warn that they can be expensive. “They can provide guaranteed income, but you pay for that guarantee,” says Ludwin.

Whatever you do, “don’t be paralyzed by fear or panic,” says Hamilton. “Start by taking small steps if you need to, because every little bit is going to help you.”

Write to retirement@barrons.com

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