Steps to Take if You're Approaching Retirement Age But Haven't Saved Enough for Retirement

When your friends and relatives start dropping out of the job market one by one, you may think, "Gee, I'd sure like to quit working and relax for a change."

Experts suggest saving 10 times your annual salary by the time you turn 67. What should you do if you don't even have close to that amount saved? 

Follow these steps if you've found yourself in a precarious retirement savings situation.

Step 1: Assess your current situation.

How much do you actually have saved in various sources, such as your savings account, maybe the odd CD and a long-lost 401(k) from a previous employer? In other words, where did you stash the money over the years? 

Track down as much as you can and add it up. Check the following locations for money you may have forgotten about: 

• Your credit card for rewards points
• Your state (for unclaimed tax refunds)
• The IRS (for unclaimed federal tax refunds)
• Employer retirement plans
• Pension plans
• The U.S. Treasury (for old bonds)
• Old bank accounts
• Life insurance policies

You might have more stashed away than you think! Don't let that money sit in the dark any longer. Bring it out into the light and make a plan for it.

Step 2: Determine how much you need to retire comfortably. 

How much can you comfortably live on during your retirement? Add up your recurring monthly expenses, which could involve the following: 

• Rent or mortgage payments
• Prescription medications
• Groceries
• Cellphone/TV bill
• Health insurance
• Debt, such as car loans, personal loans and credit card debt

What other expenses will you have each month in retirement?

Based on these results, set a goal for how much money you'd like to save by your target retirement date.

Step 3: Keep working.

If you don't have very much money saved, you'll probably have to keep working, at least for a while. You may be tempted to pursue a job that pays more if you need to catch up with retirement savings. 

However, think about how changing jobs might impact your 401(k). You may not qualify to contribute to your 401(k) right away. In fact, about 41% of employers require workers to wait six months or more before they can use their employer's 401(k) plan. 

Also, due to vesting, it might take you a couple of years to actually own the money in your account. “Vesting” means that you own a certain percentage of your account in the plan each year. However, many companies' policies require you to work at the company from three to seven years in order to officially become fully vested in the company 401(k). Some may allow you to be vested for a percentage of that amount, which increases each year until you reach the maximum amount.

You may want to stick with the job you have based on the vesting schedule. You also don't want to waste precious time before you can even get started investing in a new retirement plan.

Step 4: Invest as much as you can.

You want to pump as much as you possibly can into your investments, particularly your retirement fund. You want to go beyond meeting your employer's match. In 2021, you can save up to $19,500 in a 401(k), 403(b), most 457 plans and the federal government's Thrift Savings Plan. You can add an extra $6,500 per year in "catch-up" contributions if you're 50 or older. This brings your total 401(k) contributions for 2021 to $26,000. 

You may also want to consider opening an IRA to save even more. You can contribute $6,000 to a Roth IRA in 2021. Those 50 and older can contribute more: $1,000 per year in additional contributions, called "catch-up contributions."

Finally, don't rely on a calendar reminder. Automate your savings for best results. You can have all retirement funds pulled from your account once per month so you don't miss a beat.

Step 5: Use tax incentives to your advantage.

Why not use tax incentives to your advantage when you're making catch-up contributions? 

For example, let's say you're in the 24% tax bracket and choose to contribute to an IRA. You can max out your IRA and reduce your tax bill by $1,440. (You'll pay even less if you make the catch-up contribution.)

Now, let's again say you're in the 24% tax bracket. Let's say you're also 59. You're eligible to make the catch-up contributions. You would save $6,240 on your income taxes, which amounts to $1,560 more than workers not eligible for the catch-up provision.

Step 6: Seek help from a financial advisor.

You may need to take a strategic approach to tracking your money and saving. It always helps to put a plan in place, so consider meeting with a trusted financial advisor who is a fiduciary. "Fiduciary" simply means that he/she will work toward your best interests. Check out a list of questions you should ask:

• Are you a fiduciary?  
• How much will I pay for your services? 
• Can you show me your qualifications?
• What's your investment philosophy? 
• What asset allocation will you use? 
• How often will you meet with me?
• How much will I have to save to meet my retirement goals? 

Ask for a specific strategy, particularly if you would prefer to retire in five, 10 or another specific number of years. 

It's okay to shop around for the best financial advisor for you. Ask around among family and friends to gauge their experiences with specific advisors in your local area. You can also talk to financial advisors who manage your 401(k) at work if you prefer to do that. They may offer a holistic approach and help guide you toward your retirement goals.

Step 7: Track your progress. 

You can work with your financial advisor to track your progress. If you choose not to use a financial advisor, you can use free apps like Mint or Personal Capital or even a paid budget app like YNAB. 

You won't know how well you're coming along on your specific goals unless you track them!

Catch Up! You Can Do It!

Finally, don't beat yourself up if you haven't saved. In fact you're not alone. A Northwestern Mutual’s 2019 Planning and Progress Study found that 15% of Americans have no retirement savings at all.

Your best bet now involves coming up with a solid plan. Never forget: The best time to plant a tree was 10 years ago. The second best time is now.