8 Ways to catch up on retirement savings

Key takeaways: 

1. If you’re not on track with your retirement savings, don’t give up.
2. Look for ways to increase your income, decrease your expenses, and pay down debt so you can save more.
3. Be sure to max out your retirement savings to take advantage of any matching funds. If you’re 50 years or older, you can also make extra catch-up contributions.

Feeling like you’re behind in saving for retirement? Worried about not having enough? If so, you’re not alone. A 2021 survey¹ found that more than half of all American workers said they didn’t have enough set aside for retirement.

If you’re in that group, don’t get discouraged, though. There are several things you can do to catch-up on retirement savings.

Is it possible to catch up on retirement savings?

Yes, and the sooner you begin to adjust your savings, the better off you’ll be. Even if you’re 40 years old and have little to nothing set aside, this means you still have more than 25 years to save before you reach full retirement age. Plus, when you put money in a tax-advantaged account like a 401(k) or traditional IRA, you reduce your taxable income along with the amount of tax you must pay each year, leaving you with more money to invest in your retirement fund.

8 Ways to catch up on retirement savings

You have lots of options. Mix and match these strategies to find solutions that work best for you.

1. Increase your income

There are three ways to do this.

• One is to change jobs in favor of a higher salary. This increases not only your annual income, but also the amount your employer could put towards your 401(k) in matching contributions if they offer that benefit.
• Another way to increase income is to take on a side hustle. Find a freelance gig, drive for a rideshare, make restaurant or grocery deliveries, do some pet sitting … there are so many options if you want to earn extra cash.
• You can also make extra money from what you already have. Sell stuff you don’t need, rent out your car or an extra room in your house, or even lease out your garage.

The key with all of these is to immediately put the extra income you make into your retirement savings.

2. Adjust your budget and pay down your debt

There are many ways to pay down your debt, and when you reduce your debt, you can put the money you used to pay for interest towards your retirement savings instead. First, set a simple budget and stick with it. Consider consolidating your debt or transferring your credit card balance to a new card with a lower interest rate, and then commit to paying off the balance. Then make sure you stay debt-free by paying off your credit cards each month.

But you don’t have to wait until you’re entirely debt-free. Make your future a priority by including retirement savings as part of your budget.

3. Downsize your lifestyle

Take a hard look at how you spend your money now and consider cutting back—even if it’s just for a year or two. For example, make do for another year with your existing car or cell phone. Cut your online subscriptions, ditch the gym membership, get rid of your cable, cook at home instead of eating out ... you get the idea. Basically, just tighten your belt and reduce your spending for a year or two to get back on track. Be sure to automate your savings and put that money directly into your retirement fund. The earlier you do this, the more time this money will have to seek growth.

You may also want to consider adjusting your expected retirement lifestyle by planning to move to a smaller home or condo, traveling during the off-season, taking advantage of senior discounts, and other adjustments.

4. Max out your retirement accounts, including catch-up contributions

If you work for a company that offers a 401(k), take full advantage of any matching funds available to you. If you don’t contribute enough to take advantage of the full match, you’re leaving free money on the table. For example, let’s say your employer pays $0.50 for every $1.00 you contribute, up to 6% of your salary. If you make $60,000 a year, 6% of your salary is $3,600. If you max your 401(k) contributions, your employer will add an additional $1,800 to your retirement fund, which means you’re saving $5,400 each year for retirement.

When you’re 50 years or older, you can make extra catch-up contributions to your 401(k), 403(b), most 457 plans, and the government’s Thrift Savings Plan. For example, in 2023, you can contribute up to $22,500, but if you're age 50 or older, you can put in an additional $7,500. In addition, you may be able to make extra payments towards your traditional or Roth IRA. In 2023, the contribution limit is $6,500; but you can add another $1,000 if you’re age 50 or older. IRS rules apply²; check with your financial professional to learn exactly how much extra you can contribute.

5. Invest beyond your retirement accounts

Are you already contributing all you can towards your 401(k) and IRA? Good for you! But you can still do more. Consider putting money in a regular savings account, a money market account, or a certificate account. You can also contribute to a taxable brokerage account. While they don’t have the same tax benefits as a 401(k) or IRA, you can invest without limit. Plus, this approach gives you tax flexibility during retirement when you begin to withdraw money.

If your 2023 household income is less than $54,750, check your eligibility for a program called Saver’s Credit^3, which matches a portion of your IRA or employer-sponsored retirement contributions. Depending on your income, this could add an additional 10 to 50% of your own contribution to your retirement savings.

6. Save windfalls for retirement

Tax refunds, an inheritance, your annual bonus, and salary increases can help boost your retirement savings in a big way. Avoid the temptation to spend this bonus money; move it directly into a retirement account where it can begin earning interest right away.

Another way to boost your savings is to divert money you’d already been paying for something else toward your retirement fund. Has your child graduated from college? Did you pay off your mortgage? Take the money you were paying for things like that and put it directly into your retirement savings.

7. Delay retirement

For most of us, this seems like a last resort. But delaying your retirement, even by just a year or two, gives you a triple benefit:

1. You keep earning and setting money aside.
2. Your investments have more time to seek growth before you start drawing money.
3. You delay filing for Social Security. Every year you wait after your full retirement age gives you an additional 8% in monthly Social Security payment.

You can even work while collecting Social Security, although you are limited in how much you can earn while still receiving full benefits.

8. Develop a plan with a financial professional

Here’s where professional advice adds extra value. A good financial professional will help you put together a solid financial plan that takes you beyond a budget and keeps you on track with your retirement goals. For example, you may want to consider converting a traditional IRA to a Roth IRA for tax reasons. You may be deciding whether to pay off your mortgage or downsize to a smaller home; whether you should exercise stock options or decide whether to take an early retirement buyout package. These are complicated decisions that need professional perspectives. And once you retire, you still need this professional advice—perhaps more than ever.

Final thoughts

If you are short of meeting your retirement savings goal, don’t give up. The worst thing you can do is nothing at all. There are many things you can do to catch up on your retirement savings. The extra money you save now could make a big difference in helping you reach your retirement goals. We’re here to help.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

We suggest that you discuss your specific tax issues with a qualified tax advisor.

¹ Survey :More Than Half Of American Workers Feel Behind On Retirement Savings | Bankrate
² 401(k) limit increases to $22,500 for 2023, IRA limit rises to $6,500 | Internal Revenue Service (irs.gov)
³ Retirement Savings Contributions Savers Credit | Internal Revenue Service (irs.gov)