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Are your retirement savings a little low? You’re not alone. In fact, about 1 in 5 (21%) of Baby Boomer workers has less than $50,000 saved for retirement, according to the Transamerica Center for Retirement Studies 2023 survey. If you’re in that low-to-no camp, here are the things you can do to help shore up your finances for retirement.
Key Takeaways
- Save any extra money you get, such as an inheritance, a raise, or tax refunds, for your retirement.
- Delay Social Security, downsize your home, get aggressive with budgeting, and freshen up your skills to boost your earnings capability.
- Give up expensive habits and hobbies or, better yet, monetize a hobby.
1. Save Your Raise
If you’re still working and get a raise, bonus, or some other form of extra compensation, commit to saving it for your retirement. Unless you absolutely need that extra money to live on, your retirement funds are a great place to stow it. Do this by upping the amount that is deducted from your paycheck for retirement if it’s deducted on a pretax basis. Remember, even if you’re retired, you can still save for retirement.
2. Save Your Tax Refund
We all want to use our tax refunds as play money, but if you’re behind on your retirement savings, that’s not a wise idea. You can deposit the money directly into an individual retirement account (IRA) using IRS Form 8888.
3. Save Your Inheritance
See the pattern? Any time you come into extra money, don’t spend it. Instead, put it toward your retirement. It’s not nearly as fun, but you’ll thank yourself later.
4. Invest in Your 401(k)
If your company is matching your contributions, you should probably invest in your 401(k). It’s free money. Your company is paying you to be involved.
“Save as much as you can in there until it hurts,” says Cassandra Toroian, founder and chief investment officer (CIO) of Bell Rock Capital in Rehoboth Beach, Delaware. “Build this nest egg as fast as you can and also get a slight tax benefit since it’s pretax dollars you are contributing.”
Note: A traditional 401(k) uses pretax dollars for contributions, whereas a Roth 401(k) uses after-tax dollars for contributions. To choose between them, decide when you want your tax break: upfront (as with a traditional account) or during retirement (as with a Roth, as long as it’s been at least five years since you first contributed to the account).
If you have access to a 401(k) with matching contributions from your employer, at the very least, contribute enough to get them.
5. Delay Social Security
If you don’t need to collect Social Security when you’re first eligible at age 62, then don’t. If you can wait until you reach age 70, your benefits will be significantly higher. That will likely mean working longer, but it might be worth it.
“This will give you an automatic increase in benefit amount and cost-of-living adjustment and avoid unnecessary taxes on Social Security while you’re working and drawing the benefits,” says Chris Hardy, CFP®, EA, ChFC®, CLU®, founder and chief executive officer (CEO) of Paramount Investment Advisors in Buford, Georgia.
6. Re-Evaluate Your Investments
In the investing world, little things add up fast. For example, if you’re invested in high-fee mutual funds or other investment products, consider some different choices. Fees can eat away at your savings. And higher fees do not equate to better performance.
“It is crucial for every investor—especially those retirees with a modest-sized nest egg—to keep the investment costs as low as possible,” says Craig L. Israelsen, Ph.D., founder of the 7Twelve Portfolio in Springville, Utah. “[An annual expense ratio] below 25 basis points (BPS) is definitely the target; 10 BPS is achievable with Vanguard funds.”
7. Get a Cheaper Vehicle
A vehicle is just one example, but what are you spending money on that you could cut? The lawn service? A rarely used gym membership? Expensive subscriptions?
8. Downsize Your Home
Maybe the kids are gone, but you’re still living in that big house. How much could you bank for retirement if you sold your home and found something smaller? There are a lot of financial variables involved in this decision, so talk to a financial planner to see if it’s right for you.
9. Learn a New Skill
How about something like consulting work? Or maybe you’re good with computers and could learn a computer language. Learning something that can earn you extra money as you age means you can continue working well into retirement.
10. Give Up Expensive Habits
For example, if you can give up smoking a pack of cigarettes a day, that could be an extra $2,300 annually for retirement. How about cutting out drinking? Water is a lot cheaper than alcohol, and the savings can add up fast.
11. Give Up Expensive Hobbies
How much is your golf game costing you? What about your boat? Whatever your expensive hobby, either give it up or, even better, find a way to monetize it. For example, become a golf instructor or start a charter service with the boat.
12. Get Aggressive with Your Budget
First, if you don’t have a budget, start one.
“A budget is like a roadmap or game plan. It clearly lays out your sources of income and expenses and the difference. By having it clearly in front of you, you can see how you can adjust your income or expenses to reach the overall savings goal you desire or need,” says Mark T. Hebner, founder and president of Index Fund Advisors, headquartered in Irvine, California, and author of Index Funds: The 12-Step Recovery Program for Active Investors.
If you’re already budgeting, it’s time to get more aggressive. Cut more expenses. Maybe eat out only once per month, use more coupons, look for deals, and don’t go on that expensive vacation this year.
How Much Do Baby Boomers Have Saved for Retirement?
Baby Boomer workers have a median of $289,000 saved for retirement, according to the Transamerica Center for Retirement Studies 2023 survey. This means that half of Baby Boomer workers saved more than this amount, and half saved less.
What Is the Full Retirement Age for Social Security?
The full retirement age for Social Security is the age at which you’re eligible to collect your full retirement benefits. It varies depending on your birth year. If you were born in 1960 or later, for example, your full retirement age for Social Security is 67.
How Many People Are Satisfied with Their Retirement Savings?
According to the Federal Reserve Board, only about a third (34%) of people who aren’t retired think their retirement savings are on track.
The Bottom Line
You’re probably not going to make a massive change to your retirement savings unless you get an inheritance or another large-scale blessing, but little changes add up fast. Just because you’re low on savings doesn’t mean it has to stay that way. Work longer, save more, and spend less—however that looks in your life.
