How To Catch Up On Your Retirement Savings

Worried about the state of your retirement savings? You're not alone. 

A 2023 Bankrate report reported that 56% of Americans feel behind on retirement savings.¹ Factors like unexpected expenses, career changes, or neglecting to save for retirement early on contribute to this shortfall. However, it's never too late to seize control of your financial future and make substantial strides towards a secure retirement.

At Education First Federal Credit Union, we recognize the significance of retirement planning irrespective of your age or financial standing. We have consolidated these tips to assist you in catching up on your retirement savings and feeling more optimistic about your future.

Assess Your Financial Position

To successfully catch up on your retirement savings, it is essential to start by conducting a thorough examination of your current financial situation. A general rule of thumb is to plan for a monthly income between 60% and 80% of your pre-retirement income. 

Start by creating a detailed inventory of your assets, liabilities, income sources, and expenses. In other words, identify what you own and what you owe. This assessment is called your net worth and is key in understanding how much you will need to save to achieve your retirement goals. This calculation provides a precise snapshot of your overall financial health and enables you to identify the resources available to bolster your retirement savings. Even though it may sound intimidating, this net worth worksheet makes it easy. 

Furthermore, it is important to examine your existing retirement accounts, such as 401(k)s, IRAs or other retirement savings accounts. Evaluate your current retirement savings, including account balances, contribution levels, and investment performance, to identify whether adjustments are required to align with your retirement objectives.

Reviewing the performance of your retirement accounts, including monitoring the contribution limits, catch-up contributions, and employer contributions, is paramount in accelerating your retirement savings journey. Additionally, consider exploring investment options such as mutual funds, life insurance policies, or real estate investments to diversify your portfolio and potentially enhance your retirement income streams in the long term. A proactive approach to assessing your financial position lays a solid foundation for effectively catching up on your retirement savings and securing a financially stable future.

Establish Achievable Retirement Goals

Once you understand your financial situation, it's time to set realistic retirement goals. Consider factors such as your desired retirement age, anticipated lifestyle, healthcare costs, and even travel and leisure. Use online retirement calculators or consult with a financial advisor to help you determine how much you need to save each month to achieve your goals. 

Setting realistic goals will help you stay motivated and focused on your retirement savings journey. Remember, it's essential to balance your retirement savings with other financial priorities, such as paying off debt and building an emergency fund.

Maximize Retirement Account Contributions

Boosting contributions to your retirement accounts is one of the most effective methods to catch up on retirement savings. Take full advantage of employer-sponsored plans such as a 401(k) and contribute, at minimum, enough to receive the full employer match, if applicable. Employer matches are essentially free money and represent additional savings significantly enhancing your retirement savings.

The 2024 IRS limits for individual contributions to a 401 (k) and 403(b) are $23,000. If you’re 50 or older, you can take advantage of catch-up contributions, which allow you to contribute additional funds to your retirement accounts beyond the standard contribution limits. For 2024, individuals aged 50 and older can contribute an extra $6,500 to their 401(k) or 403(b), raising their employee contribution limit to $30,500.

Consider Postponing Retirement 

If you are behind in retirement savings, one effective strategy to consider is postponing your retirement. By extending your working years beyond the usual retirement age, you create an opportunity to enhance your savings and let your current investments continue to grow. This method not only permits extra deposits into your retirement funds, but also lessens the duration for which you will depend on your savings in retirement. Just a couple of additional working years can make a significant impact on your financial stability. And by continuing to work, you can also delay collecting Social Security, which allows your monthly benefit to increase as long as you are over age 66. 

Cut Expenses and Increase Savings

Another effective strategy for catching up on retirement savings is to trim expenses and increase savings wherever possible. Identify areas where you can reduce discretionary spending like dining out, entertainment, or unnecessary subscriptions. Redirect these savings to your retirement accounts to accelerate your progress. This will require that you update your budget – something we should all do every couple of years.  

One of the most important retirement savings techniques that is often overlooked is earmarking annual increases in pay for retirement savings. While it is tempting and only human nature to want to see the fruits of your labor in your paycheck, the truth is that if you plan to allocate that increase to your 401k, IRA or other retirement savings plan, you’ll never miss the money. 

Diversify Your Investment Portfolio

Diversification is crucial for a successful retirement savings strategy. You can reduce risk and enhance potential returns by spreading your investments across stocks, bonds, and real estate. It is wise to refrain from putting all your funds into a single asset class and, instead, periodically adjust your investment mix to maintain the desired portfolio balance. 

When devising an investment strategy—especially one intended to help you catch up on your retirement savings—it is highly recommended that you work with a financial advisor. A knowledgeable financial planning or wealth management professional will help you devise an investment strategy that aligns with your risk appetite, time horizon, and retirement goals while helping you navigate market volatility.

Utilize Tax-Advantaged Accounts

Tax-advantaged retirement accounts offer substantial benefits that can expedite catching up on retirement savings. Traditional 401(k)s and IRAs enable contributions of pre-tax income, reducing taxable income and allowing investments to grow tax-deferred until retirement.

Alternatively, contributions to a Roth IRA are made with after-tax funds but provide tax-free withdrawals in retirement. Roth accounts are particularly advantageous if you anticipate a higher tax bracket during retirement or aim to minimize taxes on withdrawals.

Stay Resolute and Adaptable

Catching up on retirement savings demands commitment, discipline, and resilience. Focus on long-term objectives and resist deviating from your savings plan, especially during market volatility or economic uncertainties. Consistency is crucial, and even modest contributions accumulate over time.

Catching up on retirement savings might appear challenging, but with meticulous planning and perseverance, it's entirely feasible. By evaluating your current standing, establishing practical goals, maximizing contributions, and implementing astute investment strategies, you can seize control of your financial future and relish a comfortable retirement.

At Education First Federal Credit Union, we are dedicated to aiding our members in attaining their financial goals. Our Wealth Management team is here to offer guidance and tailored solutions for your success. Connect with an experienced member of our team today.

¹.https://crr.bc.edu/one-in-four-households-unaware-they-should-start-worrying-about-retirement/