More than one-fifth (22%) of Americans have less than $5,000 saved for retirement, including nearly one in five Baby Boomers, according to a recent study. Almost half of working adults (46%) expect to work past the traditional retirement age of 65, the study showed.
If you’re close to retirement but you don’t have enough savings to retire comfortably yet, it’s not too late. By taking some deliberate steps, you can start catching up now to become more financially prepared for retirement.
Increase Your Retirement Contributions
If you have a 401(k), IRA or another retirement account, start making or increasing your monthly contributions. Even if that means you have to cut back on other current nonessential expenses, prioritize your retirement savings so you can enjoy retirement later.
If you’re over the age of 50, the maximum contribution allowed by the IRS is higher for you; for instance, the annual contribution limit for IRAs in 2020 is $6,000, but $7,000 if you're age 50 or older. For 401(k) plans, people over 50 can contribute up to $26,000 annually, compared to the $19,500 limit for other savers. You may not be able to contribute the full amount, but it’s a goal to work toward.
Increase Your Risk Levels
Is your retirement still several years away? If so, it may be a good idea to increase your risk level in your retirement portfolio. Higher-risk investments offer opportunities for your money to yield even greater returns.
Those higher-risk investments also offer opportunities for greater losses, so as your retirement date grows nearer, move your investments to moderate risk levels. That way, you can capitalize on large gains now without risking huge losses during your years without earned income.
Decide to Work Longer
When you continue working past the traditional retirement age, you have more time to save for retirement. In addition, you can delay your Social Security benefits, which will increase the amount of your eventual Social Security checks. For example, your monthly Social Security benefit can be up to 70% higher if you wait until age 70 to take it, versus starting your monthly payments at age 62, according to Morningstar.
Working longer also means your retirement savings will need to last for a fewer number of years, so you won’t have to save as much. If your health and other circumstances allow it, choosing to work longer can be a valuable strategy to prepare for a more financially secure retirement.
Sell Your Home
For many retirees, their home is their most valuable asset. If you own your home and are willing to sell and downsize, you can fund your retirement account with the remaining equity you earned from the sale of your home.
Not interested in owning a home during retirement? If you choose to sell your home and rent, you can also save money on ongoing home maintenance, so you won’t have to include that in your retirement budget.
Create Additional Income Streams
There are plenty of ways to come up with more money to set aside for retirement, especially in the gig economy. Look for ways to earn extra money such as driving for Uber or delivering meals or groceries for DoorDash. You could also consider starting your own side business based on a hobby or skill such as photography, cooking for others, copywriting, graphic design or interpreting. You may even want to pick up a part-time job.
Add any extra earnings to your retirement accounts, which can help you catch up on retirement savings quicker. Also, if you find additional income opportunities that you enjoy, you may even be able to continue earning throughout retirement.
Just because you’re behind on retirement savings doesn’t mean you can’t have a fulfilling, financially secure retirement. It’s possible to catch up, but you need to take deliberate steps now to change your habits and prioritize retirement savings.