What to Do If You’re Behind on Retirement Savings
Savings Strategies | by Jules Buxbaum | Monday, January 06, 2025
What to Do If You’re Behind on Retirement Savings can feel like an overwhelming question for many individuals. Yet, statistics indicate that 56% of Americans believe they have not saved enough to support a secure retirement, placing them at risk of future financial shortfalls.
If you resonate with that feeling, you’re not alone—and it is possible to catch up. Practical steps range from maximizing workplace contributions to reassessing your investment strategy. To get even more ideas, consider exploring our detailed guide on how to start saving for retirement at any stage.
Why Falling Behind on Retirement Savings Happens
Being behind on savings doesn’t always stem from reckless spending. Life events—like health issues, job losses, or covering tuition for children—can reduce the funds you have left to save.
Rising prices can also have a significant effect. According to one 2023 survey, 40% of older Americans reported delaying retirement due to inflation, highlighting the gap between what they’ve set aside and projected living costs. Additionally, oversights like ignoring employer-matching programs or relying too heavily on static “target date” funds can leave shortfalls in your long-term strategy.
Immediate Steps to Get Back on Track
The first move to address late-start saving is to calculate what you truly need. This involves assessing anticipated retirement expenses—housing, insurance, general spending—and matching them against projected income sources like Social Security and any pensions.
Next, consider bumping up your 401(k) contributions. For those aged 50 and older, IRS catch-up limits let you direct more money yearly into your plan. Employed individuals should also take advantage of any available matching funds. If that’s not on your radar, you might appreciate our overview on how to maximize employer (k) matching contributions. Boosting contributions late in your career can often add tens of thousands of dollars to your savings.
Exploring the Right Level of Investment Risk
A common assumption is that everyone needs lower equity exposure with each passing decade. However, 2Pi Financial’s viewpoint challenges this idea by focusing more on the ratio of future earnings to current wealth, rather than age alone.
When future earnings are high relative to existing savings, a higher equity allocation can make sense. This is because future income helps cushion market volatility, much like a stable bond portion would. In contrast, an individual with limited earnings potential but substantial assets might opt for a more conservative mix. The takeaway is that “one-size-fits-all” target date funds may not align with every situation.
2Pi Financial’s Perspective on Catch-Up Saving
2Pi Financial believes that many investors unintentionally adopt too little risk in their portfolios. Data stretching back more than a century shows equities have provided higher long-term returns than other asset categories. This premium is not purely random; it underscores the idea that modeling market performance requires more nuanced tools than traditional finance theory provides.
While most financial advice reduces stock allocations simply based on age, 2Pi emphasizes personal financial circumstances. Future earnings potential acts as a form of stabilizing factor, rather than a blanket assumption that age alone dictates risk tolerance. If you’re behind on savings, 2Pi’s approach can be especially relevant because a slightly higher equity allocation might offer stronger growth—provided it’s in line with your ability to handle market swings.
Leveraging 2Pi’s Financial Planning Engine
For individuals wondering about specifics—like how much to save or how long to work—2Pi’s Financial Planning Engine helps generate a customized roadmap. It allows you to enter financial details, then tweak parameters such as retirement age or savings rate to see how each decision shapes your odds of sustaining income throughout retirement.
This approach deviates from a traditional “glide path” by letting you explore scenarios based on personal factors rather than generic age-based allocations. By monitoring your portfolio over time, you can make careful adjustments as market conditions and personal circumstances change.
Common Strategies to Accelerate Retirement Savings
Though specialized software can pinpoint unique scenarios, certain principles apply broadly to late savers looking to accelerate growth. First, aim to make full use of tax-advantaged accounts. Individuals 50 or older have higher annual contribution limits for 401(k)s and IRAs, often referred to as “catch-up” contributions.
Second, analyze your monthly budget for expenses that can be trimmed without sacrificing all enjoyment. Even $100 or $200 more invested each month can add up significantly when enhanced by compounding. Third, consider working a bit longer or seeking additional part-time earnings. Delaying Social Security alone might boost your monthly benefit by 8% annually after your full retirement age.
Fourth, evaluate how inflation might alter retirement costs. It’s easy to underestimate how higher prices can erode purchasing power over 10 or 15 years. For more insight on this issue, check out understanding inflation risk in retirement savings. This knowledge can help you refine your portfolio choices to include assets that may offset rising prices.
Frequently Asked Questions
Are Catch-Up Contributions Really That Important?
Yes. They allow anyone 50 and older to exceed standard IRS contribution caps. For 401(k) accounts, you may add thousands of dollars annually beyond normal limits, potentially boosting your nest egg by six figures over time.
Is It Ever Too Late to Start?
Starting early is ideal, but late efforts can still make a difference. Aside from bigger contributions, you might delay retirement. Each extra year of work helps you save more and reduces the years your assets have to last.
How Do I Factor in Healthcare Costs?
Medical expenses can be a hefty portion of retirement budgets, especially if long-term care is required. Consider contributing to a Health Savings Account (HSA), if eligible, and look into long-term care insurance. The earlier you do this, the more options you have.
Bottom Line
Catching up on retirement savings requires a purposeful plan: adding more to tax-advantaged accounts, possibly working longer, and choosing an asset allocation that aligns with your individual future earnings possibilities. While it’s tempting to follow a generic guideline, strategies that neglect your personal timeline can do more harm than good.
In looking beyond standard approaches, you might realize that a steady reduction of risk based solely on age isn’t always optimal. A more tailored perspective—like the one advocated by 2Pi Financial—can enable you to plot a course that addresses your challenges, goals, and willingness to ride out market fluctuations. If you’re curious about other pitfalls to avoid, our guide on common mistakes to avoid when planning for retirement can help you spot potential missteps ahead.
Whatever path you choose, starting as soon as possible is often the best move. A little more today can mean far more security tomorrow.
References
1. Harbor Life Settlements. “Retirement Statistics.” 2023. Available at: https://www.harborlifesettlements.com/retirement-statistics/
2. T. Rowe Price. “Retirement Savings by Age: What to Do with Your Portfolio.” Available at: https://www.troweprice.com/personal-investing
