Behind on retirement savings? Here are 3 ways to catch up

The steady path to a dream retirement
The steady path to a dream retirement

I'm in my late 50s and not as prepared for retirement as I'd like to be. I have the equivalent of about one year's salary saved in my 401(k). What can I do improve my retirement prospects? --Linda M., Florida

Generally, you should have six to nine times your salary tucked away in a 401(k) or other accounts by your mid-50s to early 60s to have a good shot at maintaining your standard of living in retirement. So you're definitely short of where you ought to be.

On the bright side, at least you know you have some catching up to do. Not everyone who's behind does. For example, a study by researchers from Ohio State and the University of Alabama found that 27% of 55- to-60-year-olds hadn't accumulated enough to maintain their standard of living in retirement, yet seemed to think they were doing just fine. The researchers labeled them "unrealistic optimists."

But even though you're behind, there's no need to panic. You've got plenty of time to improve your retirement outlook, provided you're willing to embark on a bold catch-up plan starting right now. Here are the three things you need to do.

1. Ramp up your savings rate. Many people in your situation look for an investing solution to bail them out: a hot stock that will triple in value, maybe a high-octane fund that will generate double-digit annual returns. But that's a risky strategy that can backfire, leaving you worse off.

A better approach: Maintain a moderate investing stance -- keeping, say, 40% to 60% of your savings in stocks, depending on your risk tolerance -- and focus on finding ways to save as much as you can. You may be surprised at how much you can grow your nest egg's value in a relatively short period.

For example, let's say you're 55, earn $80,000, get 2% annual raises and have $80,000 already saved. If you save 15% annually for the next 10 years and earn 6% a year, you'll end up with just under $320,000 at age 65. Push your savings rate to 20% a year, and your nest egg would weigh in at almost $380,000. Granted, that's not going to fund a lavish lifestyle. But you'll be in much better shape than you would be without taking dramatic action.

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If you have the willpower to muster such a savings effort -- and it will take willpower to save 15% to 20% if you haven't been doing so -- you shouldn't have much trouble finding places to stash your savings. The limit for 401(k) contributions these days is a relatively generous $18,000, plus $6,000 in catch-up contributions for anyone 50 or older (although individual plans can set a lower ceiling). You may also be able to set aside another $6,500 ($5,500 plus a $1,000 catch up) in a traditional or Roth IRA. (To see which type of IRA you qualify for and how much you can contribute, check out Morningstar's IRA calculator.)

And, of course, you always have the option of socking money away in taxable accounts, preferably in low-cost tax-efficient options like index funds or ETFs.

2. Put in a few extra years on the job. Working even just a few more years can improve your retirement readiness for several reasons. First, you've got more time to save and earn a return on existing and new savings. Another three years of saving plus investment returns on new and existing savings for our hypothetical 55-year-old socking away 20% a year would boost the value of her nest egg by roughly $135,000 to about $515,000. Those three extra years of work are also three fewer years that nest egg has to last in retirement.

But there's another benefit to delaying your work exit: a higher Social Security benefit. Each year you postpone taking benefits between the age of 62 and 70, your benefit increases by 7% to 8%, possibly more depending on your work history. So, for example, a 65-year-old woman earning $95,000 who delays three years might see her yearly payments increase from $28,500 to $35,500 (before inflation adjustments) and her potential lifetime benefit increase $60,000, according to Financial Engines' Social Security calculator.

Married couples can reap even bigger gains in lifetime benefits by coordinating when each spouse starts collecting. The combination of a boost in savings and larger Social Security benefits can easily mean the difference between merely scraping by and enjoying yourself in retirement.

3. Think outside the box. If you're willing to be creative and resourceful, you can find even more ways to improve your situation. For example, just as working a few extra years before you retire can enhance your retirement security, so too can taking on occasional or part-time work after retiring.

Let's say you earn $20,000 a year working part time for the first five years of retirement. Assuming that extra income allows you to reduce withdrawals from savings by the same amount, your nest egg would be worth roughly $116,000 more after five years than it would have been if you hadn't worked, assuming a 6% return on your savings. Just remember: If you work and collect Social Security benefits when you are below full retirement age, your monthly benefit could be reduced if your earnings exceed certain thresholds (although if it is, Social Security effectively restores those withheld payments by increasing your benefit when you reach full retirement age.) You can check out what sorts of jobs are available for retirees and pre-retirees and what they pay by going to sites like and

If you've got a significant amount of equity in your home, you might consider freeing up some of it for spendable cash by downsizing to less-expensive digs. On the other hand, if you prefer staying in your present home, you may be able to convert some of your home equity to income by taking out a reverse mortgage. And if you're willing to consider a somewhat more radical move, you may be able to stretch your retirement income by relocating to an area with lower living costs. (This calculator can help you compare living expenses in different cities.)

I'm not saying that taking these steps will insure you'll achieve the same level of financial security in retirement that you would enjoy had you been saving diligently all along. That would be unrealistic. But if you start on a comprehensive catch-up plan now, you should be able to regain considerable lost ground, and you'll definitely be better off than if you do nothing at all.

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