Retirement Catch Up Tips That Will Help You Grow Your Savings

This post on retirement catch up tips contains affiliate links. If you click on a link and make a purchase, I will receive an affiliate commission at no extra cost to you. Please read my disclosure page for more info.

There is a retirement savings gap in the United States and it is affecting baby boomers. Many of us who are behind in saving for retirement are older. This is a problem because we have fewer working years left to make money.

Thankfully, there are a number of ways to catch up retirement savings.

How Big Is The Retirement Savings Gap In The US?

You are not alone if you are behind in saving for retirement. The Transamerica Center for Retirement Studies revealed in their August 2021 report that 1 in 3 baby boomers expect Social Security will be their primary income during retirement due to minimal savings.

There are many reasons baby boomers can come up short in saving for retirement. A few examples include:

• Implicit bias and the racial wealth gap.
• Half of US employees don’t have any type of retirement plan at work.
• IRAs were not created until 1974.
• The 401(k) was not invented until 1978 and it effectively killed pensions.
• Career setbacks can interrupt saving for retirement.
• Medical emergencies lead people to raid their retirement accounts.
• Low wages & poverty prevent many workers from saving for retirement.

When I was younger, I felt I didn’t make enough money to save for retirement. The majority of social work jobs I’ve held over my career have been low paying. Saving for the future was something I thought I would have time to do later, when I was earning more.

Time has a funny way of speeding up as we grow older, though. For baby boomers facing a retirement savings gap, it’s important to use every possible tip and strategy to catch up.

Retirement Catch Up Tips

If you are behind in saving for retirement, the following strategies can help you to get back on track. However, these tips are only good if you use them! Cultivate self-discipline as you apply each of these retirement catch up tips to reach your goal.

Get Out Of Debt

The first thing you want to do is get rid of debt if you have any. Keeping debt around is like trying to swim while wearing a weight belt. You might be able to tread water, but you’re not going to get very far. Having debt will make it much harder to catch up retirement savings.

Two popular methods for getting out of debt include the debt snowball and the debt avalanche. I chose the debt snowball because the frequent small wins kept me motivated to get out of debt faster. Either one will work, so pick the one you can stick with.

Once you’ve gotten out of debt, you need to build up an emergency fund so you have a financial cushion when the unexpected happens. An emergency fund will help you avoid debt in the future, so you can keep your focus on growing your savings.

Increasing your income, along with temporarily cutting back on optional expenses may help you find the extra money needed to get out of debt faster. Making more money will give you more leverage than cutting expenses, so keep an eye out for opportunities. If you are skilled at what you do, it’s a great time to find a higher paying job.

Build An Emergency Fund

Most financial advisors recommend setting aside an emergency fund of 6 to 9 months of expenses. When facing a financial crisis, you may have to cut back in some areas for a while. Make sure you have enough money saved to cover the essentials.

Having cash in an emergency fund will help keep you afloat when the unexpected happens. COVID-19 has highlighted the importance of this in stark detail. Who could have predicted a global pandemic that would drag on for two years?

You may not have imagined a pandemic, but all sorts of things can and do happen that impact finances. An unexpected job loss, an environmental disaster, or a sudden health crisis can prevent you from being able to do your job.

These types of emergencies can push us into retirement sooner than expected, possibly before we’re financially ready. The best thing to do if you’re behind in saving for retirement is to get started now.

If You Have A 401(k) Retirement Plan, Try To Max It Out

Not everyone has access to a 401(k) retirement plan at their job, but if you do, try to max it out. This is something I failed to do for most of my career. It’s the reason I have had to work so much harder to catch up my retirement savings.

When I finally began contributing to retirement savings at work, I started small. Five dollars a week was automatically taken out of my check before I ever saw it. Automation saved me! With each pay raise, I had more taken out of my check to increase my retirement savings.

Even if you can’t max out your 401(k) at work, contribute as much as you can. Especially if your employer offers a match.

Hot Retirement Catch Up Tip: Get The Match!

If your employer offers a 401(k) match, do whatever you can to take advantage of it! A 401(k) match is additional (free) money that your employer adds to your 401(k) account. Your employer basically matches your contributions (fully or partially), for every dollar you save in your 401(k).

Taking advantage of the 401(k) match will help boost your retirement savings. Your employer is matching your contributions as an incentive to help you save. Wouldn’t you like some free money to help grow your retirement nest egg?

You’re doing more than saving when you put money into a 401(k), though. You are investing, with the hope it will help your money to grow even faster.

Contribute To A Traditional Or Roth IRA

An Individual Retirement Arrangement (IRA), more commonly referred to as an Individual Retirement Account, is a type of tax advantaged investment account designed to help you save for retirement.

Whether you choose a traditional IRA or a Roth IRA to save for retirement, you will again be investing.

Traditional IRA

Contributions made to a traditional IRA are tax deferred. This means you won’t have to pay income tax on the money you contribute until you take it out.

The benefits of a traditional IRA include potentially lowering the income tax you have to pay now, when you may be at your highest earning level. You get to deduct contributions in the year you make them, effectively lowering your income so you pay less income tax. In addition, your contributions and the interest are allowed to grow tax free.

However, you will be taxed on both the contributions and the growth when you take money out of a traditional IRA. The expectation is your income will be lower in retirement, so you won’t have to pay as much income tax when you’re older.

Roth IRA

With a Roth IRA, you pay the taxes up front, so there’s no tax deduction for the contributions you make. However, your contributions and the interest earned are completely tax free once you begin to make withdrawals (at age 59 1/2 or older).

The Roth IRA may be helpful if you need some flexibility in your retirement income. For example, if you expect your income to be much higher in retirement than when you were working, a Roth IRA may make sense. Having a source of tax free income may help to keep your income taxes lower in retirement.

Take Advantage Of FSA Or HSA Accounts

Does your job offer a Flexible Spending Account (FSA) or a Health Saving Account (HSA) plan? Participating in an FSA at my job allowed me to set aside pre-tax money to pay for qualified medical expenses, which helped me save more money.

FSA

A Flexible Spending Account (FSA) is a great way to save money on medical expenses. An FSA lets you use pre-tax money to pay for eligible medical expenses, so your money goes farther. If your employer offers an FSA, the amount you elect to set aside will be deducted from your paychecks over 12 months.

The most important thing to remember about the FSA is that it is a “use it or lose it” account, so plan carefully and spend all of your pre-tax FSA money each year.

Keep track of the savings you gain by using an FSA. Then be sure to add that amount to a retirement savings account, such as your IRA.

HSA

Sometimes called a stealth IRA, a Health Saving Account (HSA) is another type of savings account that lets you set aside pre-tax dollars to use on qualified medical expenses. Unlike an FSA, you do not have to use the funds within a year.

Instead, you can allow the money to grow and then wait until retirement to reimburse past medical expenses. It is called a stealth IRA because you can use it just like an IRA, allowing the funds to compound tax-free over time. Save those receipts!

HSA plans are triple tax advantaged because you contribute pre-tax money, it grows tax-free, and withdrawals for qualified medical expenses are also tax-free.

To participate in an HSA, you need to be enrolled in a high deductible health plan (HDHP) and you can’t have any other type of health insurance (including Medicare). You also can’t be claimed as a dependent on anyone else’s tax return.

Final Thoughts On Retirement Catch Up Tips

If you are lucky enough to be able to max out your 401(k) and/or your IRA, fantastic! The government limits how much you can contribute to tax advantaged retirement accounts each year, so investing in an HSA (as if it were a stealth IRA) can be a sweet opportunity if your employer offers one and you qualify.

It takes discipline and creativity to catch up retirement savings after a late start, but it can be done! These retirement catch up tips can help you grow your savings and get your retirement plan back on track. Remember, these strategies will only work if you use them. Get started today, even if you can only save and invest $5 per week at first. Any amount you save and invest today will make your future retirement better.

Related: Money Making Ideas That Will Make You Laugh

Which retirement catch up tips are you ready to try?