How to Play Retirement Catch Up

by Emily Guy Birken

I vividly remember the first time I learned about the power of compound interest. My 9th grade social studies teacher taught us a lesson on it, showing what would happen if one student started saving for retirement at age 23 and then stopped putting money away at 35, and another student waited until he was 35 to even start his savings. Because of compound interest, the first student ended up with more money, and had had to put away a lot less.

Unfortunately, not everyone is lucky enough to have that lesson early. According to the Employee Benefit Research Institute, 43% of workers had less than $10,000 put away for retirement in 2010. This will certainly not do.

How to Catch Up on Your Retirement Contributions

Retirement Catch Up Contributions

Catching up on retirement contributions can be an uphill climb, but it's worth it!

If you’re one of the millions of Americans who have not put enough away for retirement, here are some things you can do to catch up:

1. First and foremost, you need to have an expert ally on your side. Find a reputable financial planner and lay out a plan together. It may seem as though only rich people need financial planners, but that is simply not true. Planning for retirement can be complicated, particularly if you are on a deadline, so get professional help!

2. Start cutting back. If you are still hoping to retire “on time,” you’ll have to reprioritize your spending. With each paycheck, you’ll need to pay yourself first (that is a necessity!) before you spend money on non-essentials. This means getting rid of credit card debt and potentially even downsizing your home so that more money can go towards your retirement. You may have to rethink how you spend your money—no more lavish vacations or less help to your kids for college—but the better gift to yourself and your children is to be well prepared for retirement.

3. Keep working longer. This is an almost blasphemous idea—just look at the riots in Europe when the governments there suggest it—but continuing to work past the magical age of 65 is a way to stretch your retirement further. It reduces the number of years that you are retired, and it gives you more years to grow your nest egg and potentially earn more through Social Security. If you love your job, continuing to work can also give you a few more years to figure out how to transition into being a retired person—it might be an easier change financially and psychologically if you reduce your hours over a number of years.

4. Take on more work now. It’s always possible to take on a second job and funnel all of that money into your retirement funds. While no one in the midst of a career wants to be delivering pizzas on weekends, it is certainly possible to find work that will be rewarding and lucrative. Could you teach about your field at the local community college? Could you work a night or two a week at the craft store you frequent? Be open to diversifying your income, and it can really help your bottom line.

5. Absolutely do NOT increase the risk level of your retirement portfolio. This would be gambling with your future. Make sure that you are well invested with reasonable level of risk and return—or you might find yourself working until you’re 100!

Catching up on lost retirement investing is not a fun prospect. But you owe it to yourself and your family to make sure money will not be a worry in your golden years.

Photo credit: nordique.

Published or updated June 30, 2011.
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{ 3 comments… read them below or add one }

1 Krantcents

Many Baby Boomers will be working longer because of the market in the last few years. I hope they are also adding to their retirement accounts as well.


2 Andrew Thomas

These are all great points. However, I think it’s important to realize that adding risk to a portfolio is appropriate for some investors. Some people may be comfortable and able to tolerate more risk, depending on their objectives, retirement goals and the amount of time they have left until retirement. Adding risk to your investments can, indeed, lead to losses in the short-run; but avoiding risk altogether could hurt growth potential in the long-run.


3 Ryan

Andrew, I don’t think the article is about avoiding risk at all costs – the message is not to add risk just because you are trying to play catch up. The goal should be to maintain an appropriate level of risk i your portfolio at all times, based on your age, investment objectives, and risk tolerance, not based on trying to increase gains.


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