Data is increasingly showing that many Americans, even those in their 50s, have saved little for their retirement.
According to research by the nonprofit Economic Policy Institute, among households headed by adults ages 50 to 55, the median retirement savings is only $8,000, according to the Economic Policy Institute.
Lack of retirement funds is all the more concerning as today’s adults are expected to live much longer. In 1940, the life expectancy of a 65 year old was almost 14 years. Today it is just over 20 years.
Supplemental income like Social Security may not be enough to cover anything beyond basic needs, especially if retirees need extensive health care as they age. The average monthly Social Security benefit is $1,369, for an annual haul of $16,428 — that’s peanuts compared with the $46,000 that the average 65 year old spends in a given year.
For 50-somethings who are swiftly approaching retirement but feel as if they haven’t yet saved enough, it can be overwhelming. The good news is that you still have some time to catch up.
Here are seven ways to boost your savings and cut back on expenses.
Use a retirement calculator to set savings goals
Even though it’s late in the game, it’s important to get an idea of how much you need to save in order to have the type of retirement that you envision.
Organizations from the American Association of Retired Persons to insurance company Voya sponsor retirement calculators, which can project your individual financial goals and show you what it will take to reach those goals, even when you are late to the process. David Skid, executive director and financial adviser of Vantage Wealth Management at Morgan Stanley in Atlanta, suggests using a variety of retirement calculators, and comparing to make sure you get consistent results.
Retirement calculators will ask you to input several pieces of data, including your age, annual salary, how much you have saved for retirement so far and any pension you expect to receive, as well as this data for a spouse.
Retirement calculators will also often ask about your spending plans during retirement. For example, if you plan to travel or spend more on hobbies or dining out, calculators will take this factor into account when projecting how much you should save.
Take advantage of catch-up contributions
One good thing about turning 50 is an additional savings opportunity for your 401(k) and IRA accounts.
For eligible workers under the age of 50, the maximum contribution limit to a 401(k) is $19,500 in 2020, up from $19,000 in 2019, and to an IRA is $6,000.
But catch-up contributions allow eligible workers 50 and over to save more, which are called “catch-up contributions”. This boosts those total contribution limits to $26,000 and $7,000, respectively.
“The government gives the ability to turbocharge or jump-start [retirement savings] for investors that are getting a later start,” Skid said.
Don’t use your 401(k) like a piggy bank
It might be tempting when facing large costs such as college tuition to dip into your 401(k), but it’s best to not touch the account. All 401(k) withdrawals are subject to your ordinary income tax rate, and it’s likely you will pay more to take out money now rather than in your retirement years because you currently are earning more and therefore placed in a higher tax bracket.
Also, 401(k) accounts only allow for one loan at a time and loans must be paid back in five years, meaning you would have to take out all of the college tuition you would need in one withdrawal and pay back four years’ worth of costs in only five years.
If your child is vying to go to an expensive school and you’re tempted to use your nest egg to fund their way, think of this before you dip: College students have access to low-cost, flexible federal student loans and decades ahead of them to repay their debt. No one is going to issue a 50-something a low-rate loan to fund their retirement.
To save your child from the financial burden of paying for your retirement later in life, you might need to have a different conversation about paying for college on their own or taking out student loans. And it’s not only for your benefit — it’s for theirs, too.
“If we don’t save for our own retirement, then when we become older, we are going to have to be reliant on somebody else to financially support us when we are no longer able to work or face potential health challenges,” Skid said.
Enroll in employer match programs
When you are saving with a 401(k), some employers will match a percentage of the contribution you make to your account.
For example, your employer could match your contributions 100% up to 6% of your income. This means if you earn $100,000 and you place 6% into your 401(k), or $6,000, and your employer will add $6,000. If you add 8% of your income, or $8,000, your employer would still match you at 6%.
Not every employer offers a match and even when they do, the match they offer can be different. It is important for you to ask your company’s HR or similar representative to find out if this opportunity exists and how to take advantage of it.
If you haven’t taken advantage of this program or if your employer is just starting to implement matches, it’s worth your time to investigate.
Also, if your employer’s 401(k) plans offer financial advice, take up the offer. A 2014 study by Financial Engines and Aon Hewitt found that 401(k) participants who received professional investment help in the form of managed accounts, target-date funds or online advice, earned higher median annual returns than others who invested on their own.
The study found that if two employees both invested $10,000 at age 45, one with advice and one without, the one who received advice could have 79% more wealth at age 65 than the employee without advice.
Add more income streams
Accelerate your savings by adding to your workload during the last few years until you retire or delaying your retirement if you are still healthy and able.
Add a part-time job or pick up an extra project at work to increase your monthly cash flow, some of which can be saved for retirement. Likewise, if you continue to work past 62, you can keep employer benefits, such as health insurance, and increase your time to add money to employer-sponsored retirement plans.
“If you are starting savings later in life, you might have to have a paradigm shift of when your retirement is going to start,” Skid said.
Automate your savings
Set your checking account to put aside money once a month into your investment account, instead of relying on yourself to manually do it, Skid says. You will be less likely to forget or bend to other expenses. Consider it your own personal payroll deduction plan.
Typically, most financial advisers suggest putting aside 10% to 15% of your income into a retirement account each year throughout your life. At this rate, financial services company Fidelity estimates that you should have about six times your salary saved up if you started saving at age 25 and planned to retire at age 67.
However, if you have delayed savings, a 2014 report from the Center for Retirement Research at Boston College found that in your 50s, you might have to boost the percentage of your income going to your account to almost 29% to reach a savings amount that is enough to live off.
Pay off debt aggressively
If you have enough cash on hand, Skid said accelerating your mortgage payments or paying down other consumer debt is another good way to prepare for retirement if you are late in the savings game.
Speeding up your mortgage payments would ease the burden of debt from the mortgage during retirement, when you would have less income to pay off the mortgage.
Because cash is earning you less than your mortgage is costing you, paying off your mortgage with that money will help set you up for a less costly retirement.
The same goes for high-interest credit card debt. You should still sock away at least enough in your 401(k) to capture any employer match, but then throw everything you’ve got toward tackling high-interest credit debt. Conservatively, you might earn 7% a year in annual stock market returns, while credit card debt can easily carry interest rates of 16% or higher.