How to Catch Up on Retirement Savings: Strategies for 30s and Beyond

This post was originally published on February 24, 2022, and extensively updated on May 20, 2024.

Saving for retirement is essential, but many Americans don’t have enough money to allow them to retire comfortably. Waiting too long to begin saving may mean that you’ll struggle to catch up and can’t afford to maintain your lifestyle after you retire.

At CMP, we work with our clients every day to help them prepare for retirement, including providing tips about budgeting and investments. If you don’t have as much savings as you’d like, whether you’re close to retirement age or you still have to work for the next decades, you’ll need retirement strategies for late starters to help you. We’ve created this guide on options available to catch up on retirement savings.

How Much Should You Be Saving for Retirement?

Before we reveal the best ways to fast-track your retirement savings, let’s discuss how much you should save. The average American has $333,940 saved for retirement, but that number is skewed by the highest earners. The median retirement savings for Americans is just $87,000. These numbers tell a sobering story about retirement in the United States.

To put these numbers in perspective, here are some guidelines for how much you’ll need to save for a comfortable retirement. Two basic methods can be used.

1. The multiple method. This method uses your income at retirement and multiplies it by 80% to determine how much annual income you’ll need after retirement. Multiply that number by how many years you expect to live beyond retirement to determine how much your total savings should be. If you were earning $100,000 at retirement and expected to live 20 more years, you would need $80,000 X 20, or $1.6 million, to retire comfortably.

2. The 4% rule. This method works by estimating the income needed in retirement and dividing it by a 4% return on your investments. If you required $70,000 in annual income for retirement, you would divide that number by .04 to arrive at $1,750,000 in savings. You’ll need to adjust for inflation, but theoretically, you could live for 30 years on your earnings.

Your retirement savings goal should allow you to live comfortably throughout your retirement. Some people plan to downsize and live quietly when they retire, while others may want to travel the world. Your plans should factor into your calculations so you can save accordingly.

What’s the Catch-Up Contribution Limit for Retirement Savings?

Retirement plans allow catch-up contributions for people over 50. Here are the catch-up contribution limits for 2023 and 2024.

• For 2023, the catch-up contribution limit for 401k, 403b and 457b plans is $7,500 per year. The 2024 amount is the same.
• For 2023, the catch-up contribution limit for SIMPLE IRA or SIMPLE 401k plans is $3,500 and will remain the same for 2024.
• For 2023, the maximum catch-up contribution for a traditional or Roth IRA is $1,000 and will remain the same for 2024.

Remember that contributions are only considered catch-up contributions if they are made in addition to the regular annual limit. These are as follows:

• $22,500 for 401k, 403b and 457b plans in 2023; $23,000 in 2024.
• $15,500 for SIMPLE plans in 2023; $16,000 in 2024.
• $6,500 for traditional and Roth IRAS in 2023; and $7,000 in 2024.
  

If you’re catching up on retirement savings, max out your contributions, take advantage of employer matching, and make catch-up contributions as soon as you’re allowed.

10 Best Ways to Catch Up on Retirement Savings

If you’re getting a late start on retirement savings, there’s a lot you can do to catch up and get on track. Here are the ten strategies we suggest.

1. Take Advantage of Catch-Up Contributions

If you’re over 50, it’s time to make the most of contributions to your employer-based retirement plan or individual plan. In many cases, you can make additional contributions to boost your retirement savings.

People over 50 can make annual catch-up contributions of $7,500 to 401k, 403b, and 457b plans; $3,500 to SIMPLE 401k and IRA plans; and $1,000 to traditional and Roth IRAs. To make catch-up contributions to retirement accounts, you must max out your allowable contributions first.

2. Delay Collecting Social Security

Social Security distributions are adjusted for inflation and guaranteed by the federal government. You may begin collecting Social Security early, but if you delay until you’re 70 years old—the age at which you must begin collecting—you can collect a larger monthly income and be more comfortable in retirement. This option may not work for everybody, but it may be worth considering.

Here’s an example. The full retirement age is 66 for people born between 1943 and 1954. Mary was born in 1954 and reached full retirement age in 2020. For each additional year she waits to collect Social Security, her benefit increases by 8%. If she waits four years until she turns 70, her benefit will go from 100% to 132%, giving her significantly higher income than she would have had if she retired in 2020. Increases vary depending on when you were born.

3. Start Making Smart Investments

If you’re planning to make investments as a retirement strategy and you’re over 50, make sure to strike a balance between being aggressive where it makes sense and being conservative enough to preserve the savings you’ve accrued.

Limiting your stock investments to 100 minus your age is a good rule of thumb. Someone 50 years old would want no more than 50% of their investments in stocks. Working with a professional financial advisor can help you manage your asset allocation and avoid unnecessary risks.

4. Scale into Retirement

If you’re just getting started with retirement savings, you might consider working a few years longer than you originally intended. This strategy dovetails with what we mentioned above about delaying the collection of Social Security benefits.

You might ask your employer to reduce your hours so you can spend more years earning income. Or you can retire from your full-time job and find a part-time job for a few years. With the growth of on-demand services and the gig economy, there are many ways to earn extra cash throughout retirement.

5. Enable Automated Transfers to a Savings Account

Having several savings mechanisms in place can help you accumulate money for retirement. In other words, don’t put all your eggs in one basket.

In addition to your 401k, consider opening a high-yield savings account and setting up automated transfers to meet your savings goal. You can coordinate your transfers with your pay schedule to ensure that money is transferred as soon as it becomes available.

6. Utilize Health Savings Accounts (HSAs) for Retirement

Health Savings Accounts (HSAs) funds must be used for qualified medical expenses for people under 65. There are penalties if you withdraw funds for other reasons. If you don’t use the money in your HSA, it rolls over into the next year.

Maxing out your HSA contributions each year can help you accumulate savings for retirement. The 2024 contribution limit is $4,150, and there’s a $1,000 catch-up contribution for people over 50. Once you’re 65, withdrawing funds is no penalty regardless of how you intend to use the extra money. 

7. Set Goals and Expectations

What is your vision of retirement? Do you want to travel the world? Do you want your mortgage to be paid off? Asking questions like these can help you set financial goals and expectations.

Whatever your financial situation, clear expectations can help you create a plan for retirement savings and increase the likelihood that you’ll meet your goals.

8. Create a Practical Budget

We strongly recommend creating a budget that aligns with your savings goals. With a budget, you may avoid falling into the practice of spending more than you can afford or accumulating credit card debt, which can interfere with meeting your goals.

Review your monthly living expenses and look for opportunities to save. For example, you could refinance your car loan or mortgage at a lower interest rate, eliminate unwanted subscriptions, and find ways to carve money out of your budget to add to your savings. If you have credit card debt, paying it down can also help you save money in the long run.

9. Start a Side Hustle

A good side hustle can add thousands of dollars to your annual income and make it possible to ramp up your retirement savings without negatively impacting your lifestyle. Side hustles can take a wide array of forms.

Some people create a side hustle from a hobby or a skill. You might do woodworking in your spare time, drive an Uber, or start a handyman business to help people with repairs.

If you decide to start a side hustle, report your extra income to the IRS and use the income to invest for your retirement. You may be able to make pre-tax contributions in some cases, which is ideal if you don’t want to move into a higher tax bracket.

10. Seek Professional Advice

Partnering with a financial advisor or a CPA can help if you’re unsure how to catch up on retirement savings. A financial advisor can help you evaluate investments and decide on a strategy that accommodates your goals.

Your advisor can help you create a budget and decide on the right savings and investment strategies to maximize your earnings. They can assist you in diversifying your portfolio to match your risk tolerance and save the money you need for a comfortable retirement.

FAQ About How to Catch Up on Retirement Savings

Here are some of our most frequently asked questions about catch-up retirement savings.

When Should I Start Saving for Retirement?

The simple answer to when to start saving for retirement is “as early as possible.” The earlier you begin saving, the more you can use compound interest. We recommend that everybody take advantage of employer-sponsored retirement plans such as 401k plans or IRAs as soon as they become eligible and max out annual contributions. If your company offers an employer match to your contributions, take advantage. You can potentially double your savings by participating.

If your employer doesn’t offer a retirement savings plan, you should open a personal account, such as a traditional or Roth IRA, and contribute as much as possible.

Is Social Security Based on the Last 5 Years of Work?

No, your Social Security retirement benefits are based on your lifetime earnings. The SSA indexes your actual earnings to account for increases in average wages. Then, they calculate your average indexed monthly earnings using your highest 35 years of earnings and apply a formula to determine your benefit amount.

If you don’t have 35 years of earnings, your benefit will be lower than if you worked longer. Any additional work you do can increase your future benefit by replacing a zero earnings year. You should receive a Social Security Statement yearly that estimates your monthly retirement benefit at different start ages.

Is It Too Late to Start Saving For Retirement?

No, it’s never too late to start saving for retirement. You’ll save more if you start early than if you wait, but that doesn’t mean you can’t accumulate enough savings to supplement your Social Security benefit and have a comfortable retirement. 

If you’re getting a late start, take advantage of catch-up contributions. You may want to work with a professional to minimize your taxable income and maximize your savings and earnings for retirement.

Are There Any Withdrawal Restrictions When Catching Up on Retirement Savings?

There are no special withdrawal restrictions when catching up on retirement savings. You may begin to withdraw money at age 59 ½ without penalties.

Recent legislative changes have increased the age of mandatory withdrawals to 73 and reduced the penalties for early withdrawal. The new law has also allowed exceptions when money is withdrawn to pay expenses related to an emergency or natural disaster. You can read the full details here.

Let CMP Help Create a Plan to Increase Your Retirement Savings

Reaching your retirement goals doesn’t need to be complicated or stressful. Taking advantage of the catch-up retirement strategies we’ve listed here can ensure that you know how to catch up on retirement savings as of today.

Do you need professional guidance to catch up on retirement savings? CMP can help!