Strategies for Catching Up on Retirement Savings in Your 40s and 50s

In an ideal world, you diligently set aside a substantial portion of your annual income in a retirement account. Over time, this money would accrue interest, compounds its growth, and ultimately positions you to enjoy a comfortable retirement, perhaps even an early one.

Unfortunately, we don’t live in an ideal world, and the actual landscape of retirement planning is not always as idyllic. In fact, findings from a 2022 Bankrate survey reveal that more than half (52 percent) of American workers admitted to falling behind on their retirement savings goals.

This stark reality underscores the challenges many individuals face when it comes to adequately preparing for their future financial security.

“Saving for retirement is a life-long journey, and if you find yourself behind on your retirement savings in your 40s and 50s, don’t despair,” advises David Neuwirth, Senior Vice President of Investments at David Lerner Associates, Inc. “With careful planning and strategic decision-making, it’s still possible to catch up and build a solid nest egg for your retirement years.”

This article explores eight effective strategies to help you accelerate your retirement savings and secure a brighter financial future.

1. Take Advantage of Catch-up Contributions: If you begin your retirement savings program later in life, don’t fret! One advantage of being in your 50s is the ability to make catch-up contributions of up to $1,000 more to retirement accounts. Maximize your contributions to 401(k) plans, IRAs, and other eligible retirement accounts to take full advantage of the additional catch-up contribution limits. Think of this as free money that compounds tax-free till you withdraw it.
2. Start Your Own Business: Another proactive step you can take is to increase your earning potential before you take full retirement. If you have a skill or talent that can be used to generate additional income, consider starting your own business or pursuing a side hustle. Entrepreneurship can provide a significant boost to your retirement savings and potentially increase your earning potential in the long run.
3. Delay Collecting Social Security: If possible, consider postponing Social Security to maximize your retirement income. Delaying your Social Security benefits beyond the full retirement age can result in higher monthly payments once you start collecting. By waiting a few years before claiming your Social Security, you can not only secure higher monthly payments but also establish a more stable financial foundation for your retirement years.
4. Invest Beyond Your Retirement Accounts: Explore investment opportunities outside of your traditional retirement accounts. Diversify your portfolio by investing in securities (stocks and bonds), real estate, or other assets that align with your risk tolerance and long-term goals.
5. Reduce Discretionary Expenses: Identify and cut back on non-essential expenses in your budget. Non-essential expenses like dining out, vacation and travel expenses, alcohol and tobacco, etc. Making small adjustments in your discretionary spending can have a significant impact on your savings rate over time. For example, by cooking at home more often or canceling unused subscriptions, you can redirect those funds into your retirement accounts.
6. Say Goodbye to High-Interest Debt: Prioritize paying off high-interest debt, such as personal loans or credit card balances. By eliminating these financial burdens, you free up more funds to invest in your retirement accounts and improve your overall financial health.
7. Enable Automated Transfers to a Savings Account: Assuming you earn an average wage during your career, Social Security will only replace around 40 percent of your pre-retirement income. This means that you will clearly need savings of your own if you want to retire comfortably.

   Setting up automatic transfers from your checking account to a dedicated retirement savings account ensures that you consistently contribute to your retirement fund. This hands-off approach eliminates the risk of forgetting to save each month.

   Automating savings transfer can also prevent the temptation to spend your savings elsewhere. By treating your retirement savings as a priority, you build a stronger financial foundation for your future.

8. Obtain Solid Health Coverage: As you enter your 50’s, health issues typically start to creep. Protect your retirement savings by obtaining comprehensive health coverage. Unexpected medical expenses can significantly impact your finances, so ensure you have adequate insurance coverage to mitigate these risks.

Conclusion

While catching up on retirement savings in your 40s and 50s may require some extra effort and discipline, it’s never too late to take charge of your financial future.

By implementing these strategies, such as maximizing catch-up contributions, exploring additional income sources, reducing expenses, and prioritizing debt repayment, you can accelerate your retirement savings and improve your long-term financial well-being.

Remember, seeking professional advice from a financial advisor can provide tailored financial guidance to suit your specific circumstances. With determination and wise financial decisions, you can achieve a comfortable retirement and enjoy the rewards of your hard work!

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Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.