Playing Catch-up: Strategies to Salvage Retirement

It was not supposed to be this way. Thinking about retirement used to be a happy thing: leisure, time with family, and travel were an eagerly awaited reward for a life-long commitment to working hard. However, if I were to survey 100 pre-retirees today, odds are most of them would share their fears and concerns about retirement before they got to the golden ideas of fishing in the mornings and bridge with friends in the evenings.

Nationwide surveys confirm my guess: take this one from the National Institute on Retirement Security for example. Over 45% of working-age households do not have any retirement assets at all. A median retirement account balance for working-age households is only $3,000 – nowhere close to enough. We could blame all kinds of trends, from tough economy to our human nature to procrastinate. However, pointing fingers is not likely to make the situation any better.

Many people who realize that they are behind in saving for retirement are tempted to look for a silver bullet: an investment in a foreign currency that will double in value over the next year, or perhaps an ownership stake in a hot new company. Unfortunately, any investment that promises astronomical returns is likely to come with matching risks. If you are one of those people who is worried about retirement and wants to be smart about risk, here are some strategies you might consider. None of them is an overnight fix, but the right tips applied with discipline could make a difference!

Boost your savings rate.

There are three ways to boost your savings rate. You can reduce your expenses, increase your income, or do both at the same time. If retirement is 15-20 years away, you may be able to make relatively minor changes for considerable payoff down the line. If you are closer to retirement age, more drastic changes may be necessary.

When it comes to reducing expenses, I recommend that you work with a financial planner and start by getting a handle on what you are spending today. Once you have clarity on your expenses, challenge the biggest ones for maximum impact. After all, no one has met their retirement goals just by sacrificing a Starbucks habit! This might mean taking a close look at your mortgage, car payment, insurance policies, and other big-ticket monthly outflows.

Here are three more ideas to help you boost your savings rate.

• Eliminate all credit card debt. The sooner you can get those balances down, the more money is freed up every month to go into your savings and investments. Cutting off reliance on credit cards will also get you away from overspending.
• Consider a second career or a home-based business. In addition to providing an extra source of income, it can help you transition into something you might enjoy doing in retirement.
• Increase savings by automating them. Many people spend the funds left in their account after the monthly bills are covered – simply because the money is there! If you have that tendency, consider setting up a weekly or monthly transfer to a savings account that will sweep that “extra” money and eliminate the temptation.

Optimize your savings.

Don’t just save money – save strategically! If you have access to a 401k, 457s, 403(b)s, SEPs or other retirement plan, max out your contributions every year (for 2017, the maximum amount is $18,000). Between tax savings and the employer match, this is a fantastic opportunity to sock away what is essentially “free money”. Those of us over 50 are also eligible for catch-up contributions up to an extra $6,000. IRA contributions allow for another $5,500 (plus $1,000 catch-up provision for the 50+ crowd).

Re-define retirement.

Consider working longer, or continuing to work part-time as opposed to stopping cold turkey once you hit 62 or 65; either option extends your earning potential. This will work best for those who enjoy their work, prefer to stay active, and are in relatively good health. Even if your earnings take a cut from working fewer hours, the decision may well be worth it. Consider that by making $14,000/year in part-time earnings during retirement, you will need $350,000 fewer in pre-retirement savings ($350,000 x standard withdrawal rate of 4% = $14,000). Supplementing your income may also allow you to delay tapping into your Social Security benefits, which can increase the amount of the benefit you receive from the government.

To salvage your retirement, start today.

Even if your retirement savings gap looks daunting, making a change today is better than putting it off until tomorrow. By boosting your savings rate, making strategic investment choices, and re-defining retirement, you improve your chances of enjoying those later years in comfort and peace.