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10 Ways to Catch-Up on Retirement Savings in Your 50s and 60s

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Stashing away money for retirement is important. But here are some tips to play catch up on your savings in your later years

Your 50s and 60s … This is traditionally a time when most Americans who’ve devoted 30 or more years to their careers can start looking onward to the days when they’ll be free of the 9 to 5 grind.

But before you can say goodbye to your morning commute, you’ve got to make sure you’ve got enough money to last you for the rest of your lifetime. And unfortunately for a lot of working people, they’ve either procrastinated, neglected, or just didn’t know how to adequately prepare for most of their careers.

I used to work with this older guy named Dan who would literally laugh out loud any time someone asked him about when he would retire someday. Dan had spent his whole life living paycheck to paycheck, and so he had virtually no savings.

His game plan was to wait until he was old enough to start collecting Social Security and then live off of that.

I’m afraid that for many people, their plan isn’t too far off from Dan’s (either intentionally or indirectly). According to data from Fidelity’s retirement platform, Americans between the ages of 50 and 59 have an average nest egg of just $203,600.

While that may seem like a lot of money to some people, it’s just not enough to sustain your retirement. Using traditional financial planning, a nest egg of $200,000 would yield about $8,000 per year or $667 per month to cover your living expenses.

Combine that with the average Social Security check of $1,130, and that’s only $1,797 per month to pay for everything: Your home, vehicle, food, health care, etc.

If this scenario of wanting to retire but having too little savings is starting to sound a lot like your personal situation, don’t panic. While you may have missed out on some key wealth-building years, there’s no reason to give up hope.

Get Your Free Stock Market GuideHere are ten great strategies you can use to get caught up on your retirement savings in your 50s and 60s.

1. Nail Down Your Plan

The first thing you’ll want to do is to come up with a very clear plan for how you will retire. This should include very specific details such as:

  • When you’d like to be done working
  • How much money you think you’ll need
  • How much you’re going to have to save each month between now and then to get there

If you’re a little unsure of how to figure all of this out, a good place to start is by figuring out how much money you’ll need to save up. This can be done by taking your anticipated yearly expenses and then multiplying them by 25.

If you don’t have a clue what your expenses will look like, a helpful tip that’s often recommended is to assume you’ll need about 80 percent of your current income. Here’s an example putting this all together:

  • If you earn $50,000 now,
  • You’ll most likely need $50,000 x 0.8 = $40,0000 during retirement.
  • Therefore, you’ll need to save up a nest egg of $40,000 x 25 = $1 million

This calculation is using a popular financial planning metric called the 4 Percent Rule. The 4 Percent Rule is a study that found that a retiree can safely withdraw up to 4 percent per year from their nest egg (with adjustments for inflation) for at least the next 30 years without fear of running out of money.

Mathematically, 25 is the inverse of 4 percent (25 = 1/0.04).

Once you’ve got a nest egg goal in mind, the next step is to figure out how much you should be saving every month to reach your target. You can do this using a simple free online calculator like this one from the US SEC.

For instance, someone in their 50’s with $200,000 in savings already who’d like to retire in 10 years with $1 million would need to save $2,517 every month to hit their target.

2. Squeeze Your Budget

To start saving more for retirement, you’re going to really need to dig deep and save as you’ve probably never saved before. And for that, you’re going to need a budget.

A budget is a plan for how you’d like to spend your money as well as a convenient place to track your progress. It can be as simple or detailed as you’d like to make it.

Personally, I’ve always found that good-old Excel works just great for me to estimate all my expenses at the beginning of the year and then record them as they happen.

The best way to work retirement savings into your budget is to treat it just like any other bill you’ve got to pay (like your mortgage or credit card). Trick your brain into thinking that this money is spoken for and non-negotiable.

Of course, that means you’ll more than likely have to make some cuts in other places to free up some cash flow. I usually like to start by going through my discretionary spending and looking for easy places to start making cuts:

  • Restaurants / eating out
  • Entertainment / Movie tickets
  • New clothes
  • Excessive travel
  • Etc.

The rationale you can use is: Which would you rather have? All of these trivial purchases, or to successfully retire?

When it’s framed like that, I think the choice is pretty clear.

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3. Utilize Your Retirement Plans

It should be no surprise that aggressive saving is going to be key to bumping up your wealth. However, that’s only one piece to the puzzle.

I used to know this guy who was trying to build his nest egg by saving as much of his paycheck as possible to his savings account. When I asked him about how much interest that bank account was paying, he said he thought it was less than 1 percent.

Despite his good intentions, his strategy was all wrong. If you want to get the most bang for your buck when it comes to bumping up your nest egg, then you need to be utilizing your tax-advantaged retirement accounts like your 401k and IRA.

There are a few key reasons why you should use these types of accounts over a traditional bank or even investment accounts:

  1. Automatic contributions. In the case of a 401k, the money comes out of your paycheck automatically without you lifting a finger. Contributions to your IRA can also be set up to do the same thing by scheduling periodic transfers from your bank account. As I always say: Out of sight, out of mind is one of the best ways not to sabotage your savings efforts.
  2. Investment opportunities. By default, your 401k and IRA are made up of investments that can include stocks, mutual funds, ETFs, etc. That means that over time you’ll have a much better chance of growing your money than you would with a low-interest bank account.
  3. Tax savings. This one is big! When you put after-tax money into a savings account, you’re only actually contributing about 75 percent of each dollar you earned because the rest went to the IRS. But when you use a tax-advantaged retirement plan, your savings get contributed before taxes are taken out. That means 100 percent of each dollar saved is yours.

If you’re not already participating in your company’s 401k plan, talk to your HR department about how you can get started. With an IRA, you can visit the website of literally any reputable financial institution (Vanguard, Fidelity, Schwab, etc.) and open one right away.

And don’t worry, if your employer doesn’t give you any retirement options, there are still plenty of ways that you can utilize these plans on your own.

4. Get Your Full 401k Employer Match

Here’s one more reason to contribute as much as you can to your workplace 401k plan: You might be missing out on free money!

As a way to motivate employees to use their 401ks, most companies will now offer what’s called employer matching contributions. This is where they might kick in $0.25, $0.50, or even a full $1 for every $1 that you save (up to some predetermined limit). The exact amount will be determined by your employer’s rules and will vary from company to company.

When I changed jobs a few years ago, one of the first things I did was get all of the details about the company’s 401k plan and their matching contribution program.

I wanted to make sure that I knew exactly how much I had to contribute to get every penny they were going to offer.

These matching contributions are nothing to dismiss. I’d say on average that they’ve added about $4,000 to my 401k each year. And that’s for doing nothing more than just being a good saver.

5. Take Advantage of Catch-Up Contributions

The IRS recognizes that older savers might need to stash away a little more of their earnings to hit a home run when it comes to being prepared. To help with this, they offer something called catch-up contributions for anyone age 50 and older.

Catch-up contributions are basically a raised limit on how much you can save into your tax-advantaged retirement plans. For instance:

  • With a 401k: The normal contribution limit is $19,500 (as of 2021). But savers 50 and older can save up to $26,000 giving themselves an extra $6,500.
  • With an IRA: The normal contribution limit is $6,000 (as of 2021). But savers 50 and older can save up to $7,000 giving themselves an extra $1,000.

Again, remember that you get to avoid paying taxes on all the money you contribute to these accounts. Therefore, the more you save, the more of your money that you get to keep for yourself.

6. Optimize Your Asset Allocation

A big contributor to how your nest egg will grow over the next 10 or so years is the types of investments it will contain. This is called your “asset allocation” and there are several factors to consider when optimizing yours.

  • Your Risk Tolerance – Would you be comfortable if your portfolio took a loss some years? This is a personal question every investor needs to ask themselves. If you’re okay with this, then you might have the stomach to take on more risk. But if not, then you should probably invest more conservatively.
  • Growth Potential – How much do I need my investments to grow? Traditionally, small and medium sized companies can grow at a faster rate than large stocks and corporate bonds. However, they will also be much riskier. Again, you need to find a balance that you’re comfortable with.
  • Protection – Even if you’re pretty tolerant of risk, it’s often recommended that you use different asset classes so that they can hedge or even out your losses. The classic example is a portfolio of stocks and bonds where their prices move in opposite directions. This results in a portfolio that is overall more consistent with lower losses.

The goal will be to strike a balance among each of these factors. For instance, as a more aggressive investor, I’m comfortable with a 75 percent stock / 25 percent bond asset allocation. But someone who is more risk averse and wants to minimize the chances of losses might be more comfortable with a 50 percent stock / 50 percent bond asset allocation.

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7. Plan to Take Your Social Security Benefits Early

If you’d like to retire as soon as possible, then one income source you might be able to tap sooner rather than later is Social Security. Depending on how long you’ve worked and how much you’ve earned, this could be another $1,000 – $2,000 per month in your pocket.

For most people, full Social Security retirement benefits will be available when you’re 67 years old. However, you can start taking early benefits as soon as age 62. If you do, the payout you’ll receive will be discounted by up to 30 percent of the full amount that you’re entitled.

Keep in mind that if you’re divorced or had a spouse that passed away, you may also be eligible to receive a portion of their Social Security benefits too. The best way to know for sure is to log in to your official Social Security account and check your eligibility.

8. Pay Down Your Debts

It’s one thing to budget your money and try to watch your spending. But if you’d really like to see your retirement nest egg target drop, then you’re going to want to think bigger.

The best way to do this is to get rid of your debts. Your debts could be anything ranging from your mortgage, auto loan, credit cards, home equity loan, personal loans, … even old student loans if you’re still paying those off.

Part of my plan for a successful retirement will be to have our mortgage paid off. Why? Because it will reduce our living expenses by approximately $1,500 every month. By doing that, I calculate we’ll need about $450,000 less in our nest egg (if I use the 4 Percent Rule as an estimation).

If you’ve got a few debts that you’d like to eliminate, there are two great strategies for accomplishing this:

  • The debt snowball method – Arrange your debts from smallest balance to largest balance and focus on paying off the smallest ones first. As you pay it off, roll that payment towards the debt with the next smallest balance so that your payments grow larger with each cycle (like a snowball).
  • The debt avalanche method – Arrange your debts from largest interest rate to smallest interest rate and focus on payoff off the ones with the largest interest rate first. As you pay it off, roll that payment towards the debt with the next highest interest rate so that your payments grow larger with each cycle (like an avalanche).

While you’re trying to pay off these debts, don’t sabotage yourself by taking on any new debts. For instance, if you’re trying to pay down your credit cards, don’t then apply for an auto loan. Look for other alternatives such as buying a cheaper vehicle or saving your money until you have the cash to buy it outright.

9. Plan to Supplement Your Income

In the same way that paying off your mortgage and other loans can reduce your nest egg target, having additional sources of income during retirement can also lower how much you’ll need. Plus, if you get started doing them now, then it will give you that extra “kick” you need to boost your savings into overdrive.

I’ve known several people who have supplemented their retirement income by having a handful of rental properties. Through collecting payments from their tenants, they were able to pull a profit of almost $1,000 per month and decrease their nest egg target by about $300,000.

The same could be true for other types of income streams:

  • Side hustles – These could be any number of odd jobs that you do periodically such as freelance writing, tutoring, delivering groceries, etc. The great thing about side hustles is that you can do them when you want to and as much (or as little) as you’d like.
  • Part-time employment – Even though the idea in retirement is to not have to work, lots of people find it healthy both financially and mentally to get a part-time job doing something they love. This can help you to make new friends, lead a positive social life, and avoid the potential isolation risks that retirement can pose.
  • Business interests – Many people have developed their own income streams by either starting their own businesses or partnering with others. A guy who works with my wife did this by starting his own lawn care service, and he plans to continue this well into retirement.

One thing to keep in mind is that if you earn a sizable amount of income through working, then it may have an impact on your eligibility to start receiving Social Security payments.

According to the program rules as of 2021, you can only earn up to $18,960 before your benefits will be reduced. Beyond this amount, you’ll only be paid $1 for every $2 benefit that you’re entitled to.

Once you reach full retirement age, the reduction is removed. You’ll again become eligible to start receiving your full amount (plus any extra money that was withheld) and any additional money you make from working will no longer have an impact.

10. Don’t Try to Take Any Shortcuts

Finally, the last thing you’ll want to do to ensure you can successfully retire in the next 10 years or so is to shoot yourself in the foot by trying to take shortcuts with your money.

A shortcut could be anything you do with your money where you think you’re outsmarting the system but really taking on a lot of unnecessary risk. Here are a few common examples:

  • Get rich quick schemes – You can find these all over the Internet – People who promise to give you “the secrets” of building wealth and making millions of dollars. But really all they want you to do is buy their crappy product or sign up for some rip-off course that’s going to cost you hundreds or even thousands of dollars. Steer clear!
  • Investing on speculation – Now is not the time to put everything you have into some “hot stock” or other alternative investment that’s making headlines. For instance, cryptocurrencies have shot up in value over the past few years. But it’s also widely debated if they are in a bubble or might lose their value once government regulation takes action. When it comes to investing, stick to boring funds that will gradually grow over time.
  • Getting involved in things that aren’t in your wheelhouse – It might seem like a good idea to get into the house flipping game or start your own brick-and-mortar business. But if you don’t have any experience doing these things, then I’d strongly suggest you tread lightly or avoid them altogether. We knew a couple that started a business in our downtown only to have it go belly-up within the first 12 months of opening. I don’t even want to imagine what their losses were.

From my observations, shortcuts always lead to trouble. They’re tempting because they’ll sound a thousand times better than working hard and making sacrifices.

But in the end, they usually don’t work out the way you thought or, worse, can leave you with less money than when you started.

The Bottom Line

If you’re in your 50s or 60s and fallen behind on saving for retirement, then all is not lost. You’ll have to take some more aggressive measures than you would have if you were younger. But it’s definitely still possible to make financial freedom come true.

After determining what your nest egg target should be, take full advantage of your retirement plans and all of the benefits that they can offer (delayed taxes, employer matching, catch-up contributions, etc.).

Optimize your investments so that you’ll grow your nest egg as much as possible without taking on any unnecessary risk.

Squeeze your budget so that you can save as much as possible. Be critical of your expenses and really try to focus on eliminating any major debts you can.

Work other income streams into your plan like those from Social Security and other potential sources like side hustles and part-time employment.

Finally, don’t try to get creative with your money or take any shortcuts. Stick to what you know and what you’re good at. You’ve come this far with how much you’ve saved, and the last thing you want is to lose any of it.

Stick with the steps we’ve outlined above, and you’ll protect yourself and your financial future.

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Written by DJ Whiteside

DJ writes about retirement and credit cards. He loves looking for new ways to optimize savings, build wealth, and sharing what he learns with others.

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