You’re not alone if you find yourself behind on retirement savings. A study by the Transamerica Center for American Studies found the average person in their 50’s has $117,000 saved for retirement. If you earn $50,000 per year, that’s nearly three times less than you should have according to Fidelity’s savings model. That leaves many people looking for ways to catch up on retirement savings. Here are five ways you can supercharge your retirement savings.
Make Catch Up Payments to 401k and IRA
One of the easiest ways to increase your savings for retirement is to make catch up payments. Both your 401k and IRA accounts will allow people age 50 and over to make catch up payments. For the year 2018, you can make catch up contributions of $6,000 to your 401k, 403b, SARSEP, and governmental 457b. You can also make additional contributions to your traditional or Roth IRA accounts of $1,000. Remember that your eligibility to get tax benefits from your IRA accounts depends on certain income requirements.
Making additional deposits to these accounts assumes your budget allows for this to happen. Many people in their fifties are now earning enough to save both in a 401k, and IRA. If that’s your situation, it’s smart to have that money directly deposited from your paycheck so you never see it in the bank. It’s much easier to save if you start living like that income was never there in the first place.
Work Longer
This one doesn’t sound like any fun, but the reality is that many Americans are planning to do just that. With people living longer, increased debt, and stagnate wage increases, it’s harder to retire at the once “normal” age of 62 or 65. That fact is backed up by the Transamerica study which found that 59% of Americans in their fifties plan to work past the age of 65, or simply to not retire at all.
Even if you don’t want to continue working your full-time job, it’s not uncommon to find a part-time job. Bare minimum this could help you bring in a little extra income, and if you’re lucky help cover some needed benefits.
Keep in mind that this strategy would make it important to continue carrying things like life insurance. If you’ll be dependent on income after these traditional retirement ages, it’s important to plan for replacement income in the event something happens.
Side Business or Second Job
Many people, especially those with full time employment, don’t give much thought to a side business or second job. If you find yourself trying to catch up on retirement savings, this can be a great way to help. You may not have thought about how valuable your skills are to other businesses out there who can’t afford a full-time employee. A part-time job, or even working as a consultant is way to earn more money, and also maintain some flexibility with your schedule.
You should also give some thought to that business you’ve always wanted to start. Maybe you are a great jewelry maker, baker, or accountant. If you have a skill that is in desire, or a product you think might find a market, it’s worth giving it a shot. Selling products through platforms like Amazon or Ebay is a great way to test out your ideas and see if you can get some traction without making large up front investments.
Spend Less and Save More
I know, this one sounds little too obvious to make the list, but the reality is some people just don’t budget their money. American’s often have their entire paycheck spent the moment they get it, and without a budget sometimes it gets spent on frivolous things. Chance are you will be amazed at how many things you spend money on that add up to big numbers.
It’s worthwhile finding a budget tool that can help you break down all of your expenses into categories. The good news is there is no shortage of tools out there to help in this process. We recommend Mint.com which takes a little bit to set up, but is smooth sailing after your accounts are linked.
It’s very common to find that you’re spending more on shopping, or going out to dinner more than you thought. Maybe not much, but often to the tune of a couple hundred dollars a month. That quickly adds up to thousands of dollars that can be used to help catch up on retirement savings.
Changes to Your Debt
Having too much debt can hurt you in a lot of different ways when trying to catch up on retirement savings. That debt is most likely costing you money every month, and it’s money you could otherwise allocate to savings. Most people’s major debt item is their home. Because of this fact, refinancing your mortgage can often have a big impact on monthly payments. Obviously this can have the biggest impact for those with high interest rates, but everyone should keep a watch on rates. Mortgage brokers are always happy to sit down with you and discuss if a refinance can lower your monthly payments.
Other debt like credit cards is often overlooked in the conversation of savings, but it’s really one in the same. In fact, if you are paying high interest rates on debt balance, you’re essentially saving yourself that money by paying it off. For instance, it’s a better idea to pay off a credit card balance with 11% interest than to invest in most mutual funds that average between two and seven percent annualized returns.
Move To a Less Expensive Home
This might be a hard pill to swallow for some of you who’ve love your house, but it should be considered. As stated above, a mortgage is often the biggest debt item on someone’s list. Refinancing is one option, but making an even more drastic change by moving altogether can have an even bigger impact. Not only can you save money in interest payments, but you might make a profit when selling your home. This would give you some additional money to invest, that might turn out to be more profitable for you.
On top of that, your home is often the most expensive thing in your life to keep maintained. If you not only move to a less expensive home, but also a smaller one, you might find the upkeep is less. By taking those saved dollars, which you will be able to see in that new budget you created, you will help in your quest to catch up on retirement savings.
The Bottom Line
The first and most important message to young people is that the best thing is to start saving early. But there are lots of reasons many people find themselves with a need to catch up on retirement savings. If you find yourself in this position, don’t panic, because it is possible to recover.
By looking at all the different options, typically you can find one that will work for you to help catch up. If needs be, assuming your health remains good, you can simply continue working for a little longer. But before that, take step to analyze your lifestyle, and get more income, or decrease expenses. Once that’s complete, make sure you put those extra dollars into your retirement savings quickly.
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