Behind on retirement? The secret to catching up

(Money Magazine) -- Question: I'm behind in saving for retirement. Should I take more risk to catch up? --James Wilson, San Antonio

Answer: I can understand your concern -- and the temptation to try to ramp up your nest egg by investing more aggressively in stocks. After all, in the wake of an abysmal 10-year span in the market, a return to equities' historical annual gains of 10% may seem like a good bet.

Yet there's no assurance that a subpar decade will be followed by a superior one. If anything, economists' expectations of generally slow growth over the next few years suggest it may take a while for stocks to return to their glory days.

Besides, recent research shows that the market is actually more prone to gut-wrenching setbacks than many investors assume.

So even if you shifted your portfolio dramatically toward equities, and that strategy generated lofty gains for several years, one repeat of the 50%-plus drop in stock prices from late 2007 to early 2009 could wipe out much of your progress.

That doesn't mean you have to simply accept the shortfall, though. There are several ways to close the gap between where you are and where you'd like to be, the most effective of which is not to invest more aggressively but to save that way.

Clearly, the amount of lost ground you can make up will depend on how much you're behind and the number of years you have until retirement. But you may be surprised at the level of savings you can rack up -- over a relatively short time -- if you make a serious commitment.

The table above illustrates the amount a 50-year-old who earns $100,000 a year and is willing to ratchet up his annual savings to 20% of salary can accumulate by 65 -- and, even better, by delaying retirement for just three more years. (Calculator: What you need to save for retirement)

That's in addition to any money (plus returns) you had previously put away. So, for example, someone in this situation who had already accumulated, say, two times his salary, or $200,000, could be looking at a total nest egg of about $1.3 million by 68.

Granted, it won't be easy; you may have to take full advantage of a combination of 401(k) and IRA accounts and catch-up contributions (an extra $5,500 for 401(k)s and $1,000 for IRAs).

But if there's any time you can put the pedal to the metal in savings, it's in your fifties and sixties, when the kids have probably flown the coop, your home may be nearly paid off, and your finances are more stable.

Working just a little longer has other benefits too. For instance, putting in an extra three years could boost our hypothetical 50-year-old's Social Security payment by roughly $500 a month in today's dollars.

Remember, too, that having substantial equity in your home by the time you retire gives you options. You might be able to sell your house and buy smaller, less costly digs, leaving you with extra cash. Those benefits may be magnified if you relocate to an area with lower living costs.

Or, if you prefer to stay put, you can do so while tapping your home equity via a reverse mortgage. (For an estimate of what you can expect, check out the reverse mortgage calculator at AARP.org).

In short, don't panic. There are plenty of ways to improve your post-career prospects, even if you're far behind and retirement is looming. But shifting to a riskier investment plan isn't one of them.

Will you be postponing retirement? If you're considering pushing back retirement we want to hear from you. Send an email with your name, age, occupation, income, nest egg size and reason for postponing, along with a recent picture, to makeover@moneymail.com.