Fact: According to the U.S. Government Accountability Office (GAO), over half of all Americans 55 years or older have no retirement savings.1 Among those who have managed to put some money aside for retirement, their average savings amount to only $109,000. That works out to just over $400 a month in income by the time they reach 65. But the real kicker is that Social Security payments, the safety net many older generations depended on during retirement are no longer enough for most people to survive.
Hopefully, you have saved more than the average American. But if you have neglected to invest in your retirement and you are still working, there is always time to bulk up your retirement account.
1. Don't Put It off Any Longer
Many people who reach their late 40s or 50s without adequate savings in the bank fear that it is too late to do anything to make a real difference, so they decide to do nothing at all. But avoiding action is the worst decision. Instead of letting fear paralyze you, let it become a powerful motivating force to get up and start doing something about the situation.
You need a plan. The best way to start is estimating how much money you will need will need during your retirement. While there are many methods for determining this amount, one of the quickest is to multiple your expected salary for the last year you work by 10 to 12. This will give you a rough estimate — and for many people, the number is shockingly high.
Now that you have a number to shoot for, you can determine how far off track you actually are from your goal.
2. Reduce Your Expenses Now
One way to improve your lifestyle significantly during retirement is to cut back on your expenses while you are still working. Lowering your monthly spending now can give you the additional money necessary to invest in your 401(k) and take advantage of your company's matching opportunities. Remember starting this year, those under 50 years old can contribute up to $18,500 per year in pre-tax dollars and those older than 50 can make up to a $24,500 contribution.
Besides giving you extra money to invest, learning to live on less helps you prepare financially and psychologically for retirement. Many retirees find it takes time to adjust to living on a lower income and they often make costly financial mistakes early on. Experiment with your budget now, so you still have the safety net of a steady income if your calculations are off.
One of the biggest expenses most people is their home. If you are considering downsizing to a smaller home once you retire, don't wait. Selling your home and moving into a less expensive option as early as possible will allow you to invest the proceeds from the sale of your home in your retirement fund.
Check out our ultimate cheat sheet on saving.
3. Sometimes Waiting as Long as Possible Is a Good Thing
You may have had dreams of walking out of your office on your 65th birthday, but it rarely makes economic sense. If possible, try to put off retirement for as long as possible. Working as few as four years longer can substantially increase the quality of your lifestyle. Besides allowing you to save a significant portion of your earnings, the longer you can delay taking your Social Security benefits, the more you will receive each month.
Saving for retirement is complex and can be confusing. That is why your best option to rescue your retirement is to speak with a financial advisor who can help you to choose the right strategies for your personal situation.