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Have you ever felt behind in your effort to save for retirement? At one time, my husband and I wondered if we would ever catch up our retirement savings. We needed a retirement strategy to boost our retirement savings!
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Making Big Changes
If you read our money story and how we struggled to get out of debt, you know that our biggest mistake was not saving money. Once we became sick and tired of being sick and tired, we went to work to get out of debt.
We cut up our credit cards and switched to a cash only household.
Anything that wasn’t essential was cut from our budget. I changed jobs to increase my income. To make even more money, I took on additional jobs and side hustled like crazy. We sold stuff. Dinner was rice and beans.
We were gazelle intense.
Although we’ve relaxed a bit from the time we were actively working to get out of debt, we still don’t use credit cards and we live within our means.
By focusing on our values, we are able to make better spending choices. We don’t buy new cars, purchase fancy gadgets, or pay for cable TV because there are other things we’d rather spend our money on.
Living a more frugal lifestyle is not about deprivation.
We save for and enjoy a couple of nice vacations each year. A vacation is so much more enjoyable when you know you won’t have to keep paying for it after you’ve come home!
Saving for vacations prompted me to start thinking more about our looming retirement years and I realized we hadn’t saved as much as we should have. We didn’t have a retirement strategy.
My husband had to retire earlier than expected due to sudden disability. He wants me to retire, too. Yet we don’t really have enough money to completely fund our retirement, at least not where we’re currently living.
I love life on the West Coast, but the cost of living here is high. I worry about running out of money and not being able to enjoy the things we want to do in retirement, like traveling to visit family and exploring places we haven’t been.
After getting out of debt, we were very late to the retirement savings game. I wondered if it was too late to catch up our retirement savings. Will we have enough time? What retirement strategy should we use?
Retirement Strategy: The Rule of 72
The Rule of 72 is a retirement strategy that can give a rough estimate of how long it will take to double your money, based on different interest rates. This is an approximation, because it doesn’t take into account market fluctuations, taxes, or fees, which would lower performance.
Dave Ramsey advocates a retirement strategy of saving 15% of household income in tax advantaged investment accounts, specifically in mutual funds purchased through a financial advisor.
Will this retirement strategy work for us? Will saving 15% of our household income be enough when we are starting to save for retirement so late in life?
What impact will fees have on our retirement funds?
Where could I get answers? Of course, I turned to the internet . . .
I found the FIRE community online and started to get excited about the possibility of achieving financial independence.
Retirement Strategy: FIRE (Financially Independent, Retire Early)
The concept of FIRE really changed how I looked at money and retirement. The retirement strategy for members of the FIRE community is maintaining a super high saving rate.
Many of those in the FIRE community are millennials who spent ten years working and saving 40-60% or more of their income. By saving and investing, they were able to retire from their jobs in as little as ten years. Quite a few of these FIRE advocates had high incomes, but not all of them did.
The common denominator was a high saving rate.
They were intense about saving and that is what allowed them to retire in their 30’s and 40’s!
If saving half your income sounds like a fantasy, why have so many millennials in the FIRE community been able to do it?
I began to wonder if Dave Ramsey’s principle of gazelle intensity could be turned around to build wealth for retirement. I was beginning to develop our retirement strategy:
Gazelle intensity + higher savings rate = rockin’ retirement fund!
Instead of applying the money from raises, side hustles, and selling so much stuff the dog thinks he’s next to the debt we no longer have, could we use the same strategies to boost our retirement savings?
Is it even possible to catch up on our retirement saving when we are starting so late? After all, those young FIRE’d millennials have compound interest on their side.
Retirement Strategy: Catch Up Contributions (Updated For 2023)
Some benefits do come with age. The IRS allows those over 50 years old to contribute more to retirement accounts. Yay!
Contribution limits for IRAs are going up in 2023 by $500. The contribution limits for a few other types of retirement accounts will also increase in 2023. This is great news if you are trying to save more money in tax advantaged retirement accounts.
For the nitty gritty details, read the official IRS announcement.
The quick and dirty (updated for 2023):
Roth IRA Contribution Limit (under age 50) $6,500
Roth IRA Contribution Limit (age 50 & over) $7,500
Traditional IRA Contribution Limit (under age 50) $6,500
Traditional IRA Contribution Limit (age 50 & over) $7,500
For those with 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan (TSP), the annual contribution limit will increase from $20,500 to $22,500 in 2023. That’s a nice boost over last year!
The 50+ catch-up contribution limit for those enrolled in 401(k), 403(b), most 457 plans, or the federal government’s Thrift Savings Plan (TSP) went from $6,500 in 2022 to $7,500 in 2023. That means if you are 50 or older, you can contribute up to $30,000 in your 401(k), 403(b), most 457 plans, or TSP starting in 2023.
Stealth Catch-Up Contributions
If, like me, you are a public employee with a 457(b) deferred compensation plan, AND you are age 50 or over, AND you have not contributed the maximum in previous years, you are allowed to contribute even more in the three years prior to your normal retirement age. For 2022 the limit was $39,000. That amount was increased up to $45,000 for 2023.
This Special 457(b) Catch-up Provision is part of the Section 457(b) of the Internal Revenue Code, and was amended by the Pension Protection Act of 2006. Look into it, you will be glad you did if you are trying to catch-up your retirement savings after a late start. It might even be worth switching jobs to get in on this deal!
Once you’ve maxed out all the tax advantaged retirement accounts that you are allowed to, just keep saving.
Open a brokerage account, but be mindful of fees.
Financial advisors charge fees. Investment funds also have fees that can range from low to very high.
Low cost index funds allow you to keep more of your savings, and you don’t need a financial advisor to make a purchase at Vanguard, Fidelity, or Schwab.
Retirement Strategy: Save And Invest As Much As You Can
If you are saving 40% of your income, it will take 22 years to retire. What can you do to save more?
If you boost your saving rate to 60%, it will only take 12 years to retire.
According to Mr. Money Mustache, by saving 75% of your income, it would only take 7 years to become financially independent.
(By the way, Dave Ramsey’s advice to save 15% of household income just won’t cut it for late-saving Baby Boomers – it would take 43 years to retire at that rate!)
Another way to figure out your retirement target number is to calculate your annual spending and multiply that amount by 25.
Are you living off of $50,000 per year now? Then you will need a retirement nest egg of $1,250,000.
Think you could live comfortably with less? If you can live on $30,000 per year, you will only need to save $750,000.
Don’t let limiting beliefs stop you from reaching your retirement goals.
Think you don’t have room in your budget to save an extra $1,000 per month? Reduce your housing costs by taking in a housemate or two.
Pick up a side hustle. Do you enjoy writing? Use your talent to create gift guides as a way to earn extra money for retirement. Start driving for Lyft or Uber. Deliver pizza at night and on weekends. The extra money will add up.
I’m sure you can come up with other ideas to supercharge your saving rate. With a little creative thinking, you can start making extra money on the side to invest in your retirement.
Old dogs can learn new tricks. You can learn to spend less and save more. Use Rakuten to save money when shopping. Increasing your income will have a bigger impact in your effort to catch up retirement savings, but saving money whenever you can is important, too.
Investing in yourself also means educating yourself. Read JL Collins stock series online for free, or get his excellent book The Simple Path to Wealth
As a baby boomer, it’s too late for me to retire in my 30’s or 40’s (already passed that mile marker). But by supercharging our saving rate, I believe there is still time to become financially independent!
Question: What is your best tip for funding retirement accounts? Are you taking advantage of the catch-up contribution limits that are allowed if you’re over 50?
Great post, thanks. As a young saver part of the FIRE community, I would say the best tip I could give (no matter your age) is to automate everything.
Automate your savings and investing every paycheck and that way, you will never see that money in the first place, and never miss it.
Pay yourself first and save before even getting the chance to spend it 🙂
Automation is key! You are ahead of the game if you automate your savings – set it and forget it.
Not doing this when I was younger was one of my biggest money mistakes.
I agree that it is not too late – start growing your savings at any age, just automate it to make sure it gets done.
Thanks for stopping by and sharing your thoughts, Mr. XYZ!
Awesome post. Me and my wife we sell stuff at markets in the community whenever there’s a market. We always make a profit from stuff we buy from Alibaba . We are aggressively saving for retirement . I’m planning to try Uber on weekends
I agree automating savings is very important over time you adjust your expenditures to allow the funds to go towards investing
Very informative and practical post.
Thank you for reading and commenting, Pachalo! It sounds like you are discovering some creative ways to save extra money for retirement, way to go! Keep saving!
What a fantastic way to view the FIRE movement! There are others in your position who’d instead choose to tear us down and continue to stick their heads in the sand.
I love that you’re turning the FIRE principals into something constructive and positive.
Thanks for your thoughtful comments, Chrissy!
I may not be able to retire early, but I’ll definitely catch-up my retirement savings and become financially independent by following FIRE principles.
It’s been so gratifying to engage with the FIRE community and others to learn and share creative ideas for catching-up retirement savings through this blog. Thank you for stopping by to be a part of it!
Hi Kathy,
I’ve passed the “retire early” milestone too, but that doesn’t mean the FI part is unobtainable. Boomers and GenXers have the same opportunities as the younger generations, plus we have the bonus of catch up contributions! What’s important to keep top of mind is that it is primarily up to us as individuals to prepare for our future. There is no guarantee that social security will be there for us. There is no guarantee that our employer will keep employing us. What we can be sure of is all that we do to earn and save. We need to be creative, determined, and persistent.
So true, Kristen!
The FIRE movement has opened the eyes of many Baby Boomers and helped them to think outside the box when it comes to reducing the gap between spending & saving.
It’s not too late to catch up retirement savings, even for us!
This is a great post! I’m all about investments, that’s pretty much all I blog about most of the time!
I’m always looking for more effective ways to invest my money, no matter how little you can save up, starting is what matters.
I applaud you for doing research to figure this out. I haven;t heard of the FIRE community before, but will be looking into the strategy for sure.
You’re spot on, Ray – just getting started on your savings journey is the most important step to take!
Brilliant Post Kathy.
I too am late to the FIRE movement, and I love that you have written for people in our generation!
I am fully focused on paying my mortgage off (at a rate more than double what the bank is happy with) as well as maxing out my contribution to superannuation (Australia’s version of the 401k / IRA contributions, I think). Meanwhile, I am working on ways to get side income as well, since I haven’t really enough income to get me retired as early as i would hope!
Thanks again for the post
Shaun
Aw, thank you, Shaun!
It sounds like you are making all the right moves to ensure a comfortable retirement, despite a late start. By making extra payments to pay off your mortgage early and maximizing your retirement savings now, you’ll be so much more ahead financially when you do retire!
The best time to plant a tree? 20 years ago. The next best time? Today. I’ve come to realize that I can’t let a late start to saving for retirement stop me from taking action today to catch-up my savings. Sounds like you are on the same page & I’m happy that we can cheer each other on!
Hi Kathy
I totally agree with the ’20 years’ statement.
I fully thought I had everything sorted 20 years ago – turned out i was wrong. playing catch up over the last 10 years. seeing my financial planner for a status report/check-in on Friday.
Happy to cheer you on at any time
Shaun
Thanks, Shaun!
The feeling’s mutual, my friend!
One of my favorite movies is “Groundhog Day” with Bill Murray & Andie MacDowell. The message of the movie, for me at least, is that it’s never too late to start over.
I’m so stressed about retirement at the age of 34. I literally have nothing. No savings and don’t own my own house. Every month is a struggle to just pay the bills. I am in a works pension, but also looking at leaving that job. I really need to figure something out soon.
Adam, I’m so sorry you’re feeling stressed about retirement, especially with everything else you’ve got going on. It may not be any consolation, but my husband & I really didn’t get serious about catching-up our retirement savings until we were in our 50s.
Because you’re so much younger, any retirement savings you start now will have much more compounding than my savings will. All I’m trying to say is that it’s not too late for you!
Your pension is valuable, find out if you’re vested so that you can still get it if you do decide to leave your job. I just got vested at my job. We are in the minority to have pensions available to us – in the USA at least, where I live, pensions are rapidly becoming a thing of the past. Even so, my pension is only one part of my retirement plan.
Are there other ways to increase your income to allow you to save for retirement? Maybe getting a promotion or a different, better paying job? Your blog is very nice – have you considered monetizing it for extra income? Or creating a product to sell on your site for passive income, such as an ebook that would be helpful to other parents dealing with autism? People could pay & download your ebook, generating extra money you could earmark to put into retirement savings.
Every little bit that you put into savings will help. You can do it!
I’m definitely looking at all the options of monetising my blog.
My pension is automatically vested after 2 years, so I’m alright there. Not sure what it’s worth though.
I also need to clear some debts, when I get that done then saving needs to be a priority.
Glad to hear that, Adam!
Great post! I discovered FIRE and the minimalism movement pretty much around the same time and that really helped me get my priorities set and understand where I want and don’t want to spend money. Our discretionary spending came down a good chunk over the last year and a half. But since moving to Germany 7 months ago, our discretionary spending has significantly dropped. Of course, COVID is partly to blame, but we are also living off one income for the time being and in a society that doesn’t need to CONSUME like the States does – another factor that really gets you to be more mindful with your spending and savings!
Looks like you guys are (hopefully) on track with your retirement catch up! The nice thing about being in your generation is that you’re probably at an all time high with your salary and have the increased contribution limits for your retirement accounts! Keep it up!
Thank you, Liz! Yes, we are definitely taking advantage of the increased contribution limits for our retirement accounts, since we are over 50. I’m making more than I have in the past, which I’m so grateful for, but I still work in a low-paid profession. So in addition to my full-time social work job, I also work part-time as a speech therapy assistant. Side hustles are helpful for catching up retirement savings after a late start, too!
This is such an interesting post. I guess when you are younger, you don’t always think that far ahead into the future. But, investing earlier is a great idea, and takes that stress out later down the line, doesn’t it?
Thanks for sharing!
Aimsy xoxo
https://www.aimsysantics.co.uk
Thank you, Aimsy! Not only does it reduce stress to know you are taking care of your future, but you won’t have to save as much each month if you start saving sooner! That is the magic of compound interest.
“Living a more frugal lifestyle is not about deprivation, however.” – I love this line. It really is about mindset. I think people hear about the FIRE movement and the high savings rates and immediately think about how deprived they’d feel. For me, the more I cut back on spending and focus on enjoying what I have the more grateful I feel.
This is a great breakdown for baby boomers late to the savings game. It’s definitely possible to catch-up.
So true, Angela. It is possible to catch-up retirement savings, even after a late start! You’re right about mindset and practicing gratitude, they both make a huge difference!
Loved everything about this article & couldn’t agree more about the FIRE Movement! I only discovered it in 2018 yet it has helped me reach my goals-the internet is such a powerful communications tool. Like many, I wish I had followed the principles in my 20s but there are advantages to being a Boomer. I’ve already made the mistakes/bought too much stuff spending mindlessly w/ no plan. In spite of myself, w/ good company matches & consistent 401k deposits over a long career, I was able to turbo charge the past 3 years because of FIRE. My kids/2nd generation FI will benefit from what I’ve learned. Thanks for your blog-enjoyed the Bigger Pockets Podcast interview.
Thanks so much for your kind words, Summer! I’m excited to hear that you were able to catch-up your retirement savings after a late start, too. It’s never too late!
Great post!
FIRE is a great approach, and especially helpful to show that it’s NEVER too late to start saving for retirement. It may not take as long to catch up as you think.
Thank you, Financial Liberty! I’m focusing on the FI part of FIRE, but I may still retire a little earlier than the conventional age of 65! No, it’s not too late to catch up retirement savings. There’s still time to make tomorrow better by saving more today.