Catching up on your retirement savings
Only 37% of non-retiree adults said their retirement savings were on track in the 2019 Report on the Economic Well-Being of U.S. Households. Another 25% reported having no retirement savings at all.
Though we've reported on how to save for retirement at any age or life stage, you're not alone if you're feeling behind.
Consider:
- Older Americans are not saving nearly enough money—often 5% or less of earnings, according to a 2021 Insured Retirement Institute report.
- 43% of survey respondents believe they may outlive their savings according to a 2021 Northwestern Mutual study.
- A 2019 TD Ameritrade survey found that 62% of respondents felt the need to "catch up" their retirement savings; among millennials, 74% agreed.
The reasons are many; financial support for family members, inadequate incomes, student debt, and the costs of healthcare and housing.
Despite these deficits, and others, 70% of the TD Ameritrade survey respondents felt that catching up on their retirement savings is "completely possible."
Retirement savings targets
Ask any of the nearly 90,000 U.S. Certified Financial Planners how much you should save, and you'll likely get some version of the following:
- Salary multiplier targets: Save 1x your salary by age 30, 3x by 40, 6x by 50, 8x by 60 and 10x by 67.
- The Rule of 25, where retirement savings of 25x annual expenses will allow for annual 4% withdrawals over 30 years' time.
- The 50/30/20 allocation, where 50% of earnings services living expenses, 30% is for fun and 20% is for your "future you."
Jessica Jones, a senior wealth manager at BOK Financial Advisors with 16 years of experience counseling private clients and 401(k) participants, suggests the 90/10 rule, where you save 10% beyond any employer contributions.
"Start as young as you can," Jones said. "Staying disciplined and consistent is the best advantage you can give yourself to getting ahead. About 50% of those I work with who have not adequately prepared are in their 40s or 50s. Many have only their 401(k) and are relying on Social Security to make up the difference."
Catch-up strategies
Jones stresses the importance of having a detailed vision of the life you want to live in retirement and creating an income strategy, including anticipated Social Security, for the next five, 10 or 15 years. For those feeling behind, remedies abound.
Here's what the Internal Revenue Service allows, though income and other restrictions apply:
- Those 50 and older are allowed to contribute up to $6,000 annually to a traditional or Roth IRA, plus an additional $1,000 (catch-up contribution). Less than 20% of the TD Ameritrade survey respondents reported consistently taking full advantage of this limit.
- You can make annual contributions of up to $20,500 to an employer sponsored 401(k) or 403(b) type plan, plus an additional $6,500 for those 50 or older.
Jones reminds people to take advantage of your employer's matching contribution, often termed "free money." And, be sure you know the requirements for vesting—usually tied to years of service—which is the date when that money is yours.
"Of participants I talk to, up to 33% are not well informed about the matching, investment and vesting opportunities of their employer-sponsored retirement plan, and often leave 'money on the table' that should instead be working for their future," Jones said.
Tips to boost your retirement savings
- Work with a financial advisor who can guide you. Nearly 60% of non-retirees with self-directed retirement savings expressed low levels of comfort in making investment decisions, according to the Economic Well-Being report. Jones recommends working with an expert who knows all your investment options, assets and expenses.
- Have a financial plan. The 2022 State of Retirement Planning Study said that savers with a retirement plan have significantly higher levels of confidence and peace of mind in their ability to retire not only when and how they want, but in knowing how much money they'll need.
- Be a lifelong learner. Read, watch or listen to reliable sources—including your financial advisor—about changes impacting the markets or recommended annual savings withdrawals.
- Postpone Social Security withdrawals to increase the payout.
- Rather than expanding your lifestyle, save raises or bonuses into your retirement accounts.
- Increase your savings one percent per year to minimize budget impacts.
- Make a big change, like downsizing a home or a vehicle you no longer need, to save on expenses.
- Spend less on discretionary items like hobbies, travel or recreation.
- Take on a part-time or hobby-style side hustle.
- Plan to work a few years longer where retirement benefits or employer contributions are provided.
As worrisome as your situation may be, Jones and other experts caution investors to consider the risks of taking desperate "Hail Mary" measures to catch up retirement savings. Timing the markets or placing risky "big bets" near or during retirement will likely exacerbate, not alleviate, the feeling of being behind, Jones warns. Instead, savers are urged to maximize their savings, diversify portfolios and adjust spending to make the most of their retirement years.
Jones acknowledges the challenges of catching up, particularly during times of high inflation and volatile markets. She's not exempt, either. "My account balances, like many others, have declined with the markets this year, and I'm up to my eyeballs in this every day. For my clients, though, our most important focus is that we're seeing this through together. It's not a 'set it and forget it' process."