5 Tips for Catching Up on Retirement Savings

Whether you are experiencing a savings setback due to market conditions or you simply put off saving for retirement earlier in your career, you are certainly not alone if you feel you could be more prepared for a financially comfortable retirement. The good news is, there are several ways you can catch up and get back on track. Here’s an overview of the role time plays in your retirement savings and five tips if you’re feeling behind.

The role time plays in your retirement savings

The reason time has such an impact on reaching retirement savings goals stems from the basic fact that there are two elements to your retirement plan: your contributions and what your contributions earn through investments (compounding). When you invest, the money generates investment earnings, and those earnings generate more earnings as time goes on, and so on. To really get your money working for you, you need to give it time to earn those investment gains. In short, the less time your money has to compound, the more money you must contribute to reach a certain goal.

If you are concerned that you don’t have enough saved for retirement, here are five actions you can take now to get your retirement plan on track.

1. Increase your retirement plan contribution

Increasing the amount you contribute to a qualified retirement plan, such as a 401(k), is the easiest way to increase your retirement account. Many people defer only the amount necessary to get the maximum employer match contribution, but don’t stop there, especially if you’re trying to catch up on lost saving time.

You can contribute up to $20,500 (in the year 2022) to your 401(k), and if you are over age of 50, or if you turn 50 this year, you can contribute an additional $6,500. This is known as a “catch-up contribution.”

2. Review your current financial situation

Taking a comprehensive look at your current financial situation, including all your recurring expenses and debt, can give you an idea of how much money you may need in retirement to maintain your lifestyle. Reviewing your financial situation can also help you identify expenses you can trim. Any trimming you make frees up more funds to contribute toward your retirement plan.

Keep in mind, it’s important to make eliminating debt – especially high-interest credit card debt – a priority before retirement so you don’t have to worry about it during retirement. Once you’ve paid off your loans, take what you would normally pay to your creditors and add it to your retirement savings contribution.

Additionally, consider economic factors, such as inflation, rising rates and a potential recession on the horizon when considering when you will retire and how much you must save to comfortably retire.

3. Build an emergency fund

It’s important to build up an emergency fund so you’re not tempted to withdraw your retirement savings early if you experience an emergency expense. Taking early withdrawals from a qualified retirement plan may be taxable to you and may also incur a penalty, in addition to hindering you from reaching your goals. Especially in volatile economic conditions, it’s important to have a financial safety net.

4. Review where and how your retirement account is invested

As you get closer to retirement or as markets become more volatile, you may be tempted to invest more conservatively, opting to safeguard your savings by investing in lower-risk investments like bonds. However, if your contributions have had less time to grow on their own, you may want to consider your risk tolerance toward a more moderate to aggressive investment.

Evaluating how much you have saved, how much time you have left to save, market conditions, as well as your personal risk tolerance will help you decide the proper asset allocation for your portfolio.

5. Consider meeting with a financial advisor

If you’d like more support and guidance while making changes to your retirement savings approach, or simply want to make sure you’re on the right track, consider meeting with a financial advisor, such as a member of Bankers Trust’s Financial Services team. An advisor will take a comprehensive look at your entire financial situation and create a personalized plan for your unique situation.