If you find yourself getting closer to the date you pictured retiring but you haven’t been able to save anything toward that goal, then you’re not alone. It’s actually a fairly common situation, financial advisors say.
“I think people just don’t want to talk about it because it’s almost taboo,” says Cory Phillips, a financial advisor at Fort Pitt Capital Group in Pittsburgh, who helps clients prepare for and live in retirement. For people in their 50s, the average retirement account has $160,000, according to Fidelity. But one out of every four adults has no retirement savings at all.
Women are more likely to find themselves in this position than men, and the gender savings gap is growing, according to a recent study.
Saving for retirement is an exercise in delayed gratification — a concept that can be difficult to get on board with particularly when the gratification is decades away. So there’s no shame in having trouble with it, and having failed to save in the past is no reason to give up on your retirement plans altogether.
There are some simple steps you can take if you’re looking to cram to catch up for retirement.
Start saving and harness compound interest
If you have about a decade to go until retirement, there’s still plenty of time for your money to grow in a retirement account like an IRA or an employer-sponsored plan such as a 401(k) or 403(b). When invested in stocks and bonds, your money has the potential to double in as little as seven to 10 years, according to experts, so put as much into those accounts as you can afford to as soon as possible.
You can put up to $19,500 into your 401(k) in 2021, and if you're 50 and older you can take advantage of catch-up contributions, which allow you to stash an additional $6,500 in your 401(k) account this year. The contribution limit for an IRA stands at $6,000 for 2021, plus an extra $1,000 for those age 50 and above.
It's harder to make up for lost time if you're within a few years of retirement. “You literally can't save yourself into prosperity in the five-year period of time,” Phillips adds. Compound interest isn't as powerful a catch-up tool with such a short runway. While that shouldn't stop you from setting money aside, keep in mind that you'll likely have to augment your nest egg with lifestyle modifications like working longer or taking on a roommate.
If you're behind in savings, it can be tempting to try to strike it rich in the markets. But steer clear of any investment promising a guaranteed return and stick with low-cost index funds, like an S&P 500 fund, that track the broad market.
You’re not going to “make this all up by getting the next magical investment,” says Steve Parrish, co-director of the Center for Retirement Income at The American College of Financial Services. While the possibility of a big payoff is there with risky investments, “the downsides are worse than the upside potential; in other words, you're not going to yield your way out of the situation. There are better ways to deal with it,” Parrish says.
Try to delay collecting Social Security
One of the best and simplest ways to increase your income in retirement is to delay collecting Social Security. To do this, consider continuing to work part-time to cover expenses up until a later age. It can be difficult to remain in the workforce as you age, but Parrish recommends you attempt if at all possible, “because that'll yield more than just saving some more money,” he says.
The longer you wait to collect Social Security, the larger your payout will be. Sixty-seven is considered full retirement age for those born in and after 1960, but waiting until 70 will get you up to 134% of what you would have gotten just a few years earlier.
Budget, budget, budget
Think about your biggest monthly expenses and how you can reduce them. Americans spend the highest percentage of their monthly budget on housing at the beginning of adulthood and in their later years; consider downsizing if you have more room than you need.
Or if you like living with others, see if younger family members would like to move in and pitch in financially; you could also look into whether your town or city has a roommate program that’s specifically for older adults. New York City, San Francisco and other places have seen success in programs like these.
Parrish says he’s a senior, too, and he recommends those over age 50 maximize their well-earned senior discounts. AARP has a useful list of these. “I always pay attention [to those],” Parrish says. “Those things can really, really add up.”