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Late on saving for retirement? Here’s how to catch up

One reason saving is hard: We tend to view our “future selves” as complete strangers, and our decisions in the present moment reflect that.
a pink pig with a smile on its face.
Credit: Vincent Romero, Mackenzie Marco / Unsplash, Rightdisc / Alamy Stock Photo
Key Takeaways
  • Most Americans are behind on saving for retirement.
  • Despite tough economic conditions, it’s possible to get back on track.
  • From cutting down spending to choosing the right retirement plan, here are some steps you can take today. 

According to a 2022 Bankrate survey, more than half of working Americans say they are behind on saving for retirement. Meanwhile, one in four have no retirement savings at all. 

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54% of the survey responders attribute their lack of retirement savings to inflation. Others cited factors such as new expenses and stagnant or reduced income. 

Psychological factors can also impede future plans. One reason it’s difficult for people to sacrifice immediate gratification for long-term benefit is that they have trouble imagining themselves in the distant future. Research shows that, while it’s easy enough for us to connect with our “future selves” a few months from now, we tend to conceptualize ourselves as complete strangers when imagining who we will be decades from today.

Combined with today’s economic environment, this psychological quirk makes it unsurprising that so many are behind in saving for retirement. But no matter how difficult your current financial situation may seem, it’s never too late to make some headway and get on track. Here’s how.

How to get back on track

If you know you’re behind with your retirement plans, your gut reaction might be to ignore it and move on with life. But coming to terms with your situation can help you propel yourself to the next step.

One way to get back on track is to look at your monthly finances and analyze your spending. This approach can help you identify your spending behavior and potential areas where you can cut back to save some extra cash. 

Go through your bank statements and check the categories where you’re spending more than necessary. For instance, are there any subscriptions you’re paying for but not using? Could you simplify your groceries list by getting rid of items that end up rotting in your fridge? These might be small steps individually, but together they can add up significantly to your savings. 

Finding the right number

While boosting your contributions is a good thing, you still need to figure out how much you need in retirement and work toward that number.  That amount depends partly on your current age, the age you want to retire, and the kind of lifestyle you want to live after retirement.

Julius Lau, a retirement financial planner at 9 Fortunes, Inc., says it’s essential to account for your personal circumstances when calculating the right number. 

“It all depends on what you are planning to do,” he says. “I like to take a holistic approach and see exactly what someone’s needs and wants are and to craft a plan that will solve their problems. Are they worried about income? Are they worried they won’t be able to continue traveling?”

Addressing personal issues when planning for retirement goes hand in hand. Personal decisions impact your retirement funds, hence, keeping an account of everything is crucial in this process.

In 2021, the average retirement age in the U.S. was 65 for men and 62 for women, according to the Center for Retirement Research at Boston College. While retiring at these ages is typically the “norm,” it isn’t a set rule. You can retire earlier or later — you just need to ensure that you have enough money by the time you reach your desired retirement age.

How much is enough money?

One strategy to help answer that question is the 4% rule, in which you save enough money to live off 4% of your portfolio in the first year of retirement

“For a retirement that would last for 30 years, you can do a simplified calculation by determining the cost of the lifestyle you want to maintain,” says Eric M. Jaffe, CEO and founder of Mosaic Wealth Partners.

He recommends increasing this figure to account for taxes and subtracting any income sources you’ll have in retirement. 

“This will give a ballpark figure of the amount you’ll need to pull out of your portfolio in the first year of retirement. You can then divide this number by .04 (which is the 4% withdrawal rate), and this will give you a sense of what your total asset pool should be at the beginning of retirement.”

Jaffe also recommends accounting for inflation as it may cost more to maintain the same standard of living in retirement than it does today. You can use a free online retirement calculator to refine your numbers and get a better understanding of what your financial future will look like. 

How much to contribute

Once you know how much you need to save in total, you can turn that into a plan for your contributions. If you’re trying to save $672,000 in total and you have 20 years to save it, that’s 240 months in total. You’d have to put aside $2,800 per month. But that’s only if you weren’t investing it in a retirement vehicle like a 401(k). 

It’s important to remember that retirement is a long game. At times, for months and even years, you may see losses instead of gains. But over the long term, the gains historically outweigh the losses, at an amount of about 7%. That would be what’s called your annualized rate of return on however much money you have saved so far that particular year. 

While it helps to know how much you might need in total, it’s more important to start saving for retirement as soon as possible. If you can’t save $2,800 a month, then save whatever you can. Get into the habit of saving a little bit at a time and working up to your goal numbers. The Singleton Foundation offers a great tool where you can set goals and see what your retirement savings could grow to. 

To help you stay on track, set up automatic payments from your bank account with consistent amounts to ensure you’re contributing each month. If you have a 401(k) or a similar plan, your employer may even offer the opportunity to save directly from your paycheck before the money hits your bank account. Contribute what you can without impacting your monthly spending, while ensuring your necessities are covered before you start this route. 

Leveraging free money

Employer matching is an initiative where employers match your contributions to a retirement account up to a certain amount. Some employers offer 401(k) plans or similar retirement investment vehicles. Check what your employer offers and contribute up to the maximum amount allowed, if possible. 

The maximum annual contribution for a 401(k) is $22,500 in 2023, while the maximum contribution for an IRA is $6,500 for the same year. If you’re 50 or older, you can contribute $1,000 per year more to your IRA and $7,500 more to your 401(k) plan. If you are older and can manage to contribute this extra amount, it can help get you back on track. 

Other important considerations

Debt can have a significant impact on one’s ability to save for retirement.  If you don’t pay off the debt before retirement, it will be an ongoing expense into retirement that you will need to account for when building a portfolio to maintain your desired standard of living. If you’re currently in debt, getting out of it takes the top priority. 

Your steps to increase retirement contributions won’t be as effective if you’re already using a high percentage of your income to pay toward your debt. 

Another factor to consider is changing your job if you have the means and resources. Earning more money means the potential to save more. However, it’s important to ask questions such as: Will you incur costs to establish yourself in the new career and/or to operate the new career? How will all of these factors affect your ability to save for retirement?

“​​If the new position increases your income without a corresponding increase to your expenses, that could help your ability to save for retirement,” Jaffe suggests.  

Similarly, if a new job or career offers benefits such as a generous retirement plan, more favorable employer matching, better health coverage, or a pension, it can prove beneficial.

No two strategies for getting back on track toward healthy retirement savings will be identical. But there’s one part of the plan that’s universal: Start saving as early as possible. 

If you are having a hard time understanding the full picture of your finances, you might consider taking help from a financial advisor. 

A financial advisor could be able to help with assessing the progress you’re making toward your goals and suggest improvements for your saving or investment strategies. 

“Advisors help you assess different types of retirement savings vehicles and determine which best suits your situation, e.g., choosing between IRA and Roth IRA,” Jaffe says.

It’s important to note that using a financial advisor has a cost. Look for fee-based financial planners that charge a flat rate for their services. You could also check to see if any of your local non-profits offer free financial services.

Although it’s not always necessary or feasible to hire a financial advisor, doing so may help reduce the stress that comes with financial planning, and help you get back on track toward a healthy retirement portfolio.


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