6 Ways to Catch Up if You're Behind on Retirement Savings

Most financial advisers agree: The simplest way to ensure you retire comfortably is to start saving early and let the power of compound interest work for you over time. But what if you got a late start or financial troubles in middle age ate into your nest egg and now you’re playing catch-up?

The hard reality is that the vast majority of Americans get a late start on retirement planning. Here’s proof: a 2014 survey from the Bankrate.com personal finance site found that more than one-third of Americans don’t have a penny saved for retirement — including more than a quarter of those age 50 to 64.

It’s also important to point out that many Americans grossly underestimate how much they will need to retire. So even if you think you are prepared for retirement, you may not be quite as secure.

But rather than moralize, I’d prefer to focus on ways to help you achieve some measure of retirement security in short order. Here are six ways to do so:

1. Kill your consumer debt Carrying a credit-card balance is always costly, but particularly so for older Americans who are trading retirement savings for interest payments on their debts.

It’s also wise to pay off car loans if you can, since that is one less monthly outlay to make in retirement after your vehicle is paid for.

2. Max out your retirement accounts The limit for a 401(k) is $18,000 in 2016, but due to the “catch-up” rules, employees 50 and older can put in an extra $6,000, or $24,000 in total. Similarly, IRAs offer a cap of $6,500 if you’re older than 50, vs. just $5,500 for younger Americans.

Given the tax benefits of investing with these plans and the fact that you’re behind, take full advantage of these higher limits if you can.

3. Stick with stocks If you’re behind on retirement savings and want to catch up, you can’t afford to settle for the kind of low growth rate you’d get from a bank CD. Saving $12,000 annually for 12 years at the bank will give you a total of roughly $144,000 … but if you earn 7 percent annually in the stock market (no guarantee, but roughly the historical average), you’ll have about $230,000.

There is added risk in the stock market, to be sure — as anyone in the market this month can tell you — but the risk of not retiring with enough money is pretty large, too.

A properly diversified portfolio and a good long-term plan can help you grow your nest egg faster.

4. Consider downsizing If you really want to save some cash, think about moving into a smaller place, especially if your kids are out of the home and you don’t need those extra two or three bedrooms anymore.

Even if you don’t have much equity in your home, the smaller mortgage payment will allow more of your monthly budget to be diverted to your retirement plan. And if you already rent, moving to a smaller apartment can unlock big savings.

5. Take other big chunks out of spending Housing is one of your biggest expenses, but other major outlays should be reassessed for savings opportunities, too. Shopping around for a new car insurance policy or cell phone plan, for instance, could save you a few hundred bucks annually.

Taking big chunks out of your budget is often much easier — and more realistic — than vowing to never eat at a restaurant again.

6. Work more If you’re eligible for overtime or can take on extra work through a second job, just a few extra hours of employment each week could add up to real money in your retirement account.

And if doubling down now isn’t appealing to you, consider working part-time when you get to your so-called retirement (what Next Avenue blogger Chris Farrell calls “unretirement”).

Or perhaps you might delay your retirement date altogether. That could make it easier for you to delay claiming Social Security, which would then increase the size of your monthly check once you start taking the benefits due to Social Security’s delayed retirement credits.