Consider this: In order to have a decent shot at maintaining your standard of living in retirement, you should have six to nine times your salary tucked away in a 401(k) or other savings accounts by your mid-50s to early 60s.
“That’s as good a general rule of thumb as any, but most people don’t come close to that, and some don’t have anything saved,” said retirement expert Mary Beth Franklin, a Certified Financial Planner® and contributing editor at InvestmentNews, in an interview.
Indeed, in a 2014 national poll conducted by Bankrate, more than a quarter of survey respondents aged 50 to 64 said they had not started saving for retirement.1
Granted, it’s never too late to start saving for retirement, but let’s not sugarcoat this. “At this stage of the game, you would need to save 40 percent of your income to reach the equivalent of what you would have had, had you started saving just 10 percent of your income in your 20s,” said Liz Weston, a columnist with NerdWallet, a personal finance site. ( Calculator: Retirement savings )
One popular solution to close the retirement savings gap is to work longer, and while many Americans plan to, it’s not necessarily a reliable solution. After all, “there might be an illness, a financial hardship, or you may just be pushed out of job against your wishes and trying to find a comparable salary in your 50s and 60s is challenging,” said Franklin. “The only thing you can control is how much you save.”
That requires a retirement saving strategy. And discipline with your money.
Of the many things you can do play catch up, here are three of the most effective, applicable financial moves that will help ensure your retirement is as you envisioned.
Max out tax-advantaged retirement accounts
One of the most straightforward ways to catch up on retirement savings is to contribute the most money you can to tax-advantaged accounts. That means maxing out the 401(k)s (at least contribute enough to capture the company match), individual retirement accounts (IRAs), or Roth IRAs. If you’re self-employed, look into retirement plan options such as a SIMPLE IRA plan, a Simplified Employee Pension (SEP) plan or a solo 401(k). Those aged 50 and older are allowed to make additional, “catch-up” contributions to these retirement savings plans. (Related: Retirement contribution limits )
“Anyone who has the extra cash should make these contributions,” said Franklin. “Over the long term, it can make a big difference in the size of your next egg.” For example, if you invested an extra $1,000 annually in an IRA starting at age 50, you'd have an extra $20,800 — $15,000 in catch-up contributions plus $5,800 in earnings — saved by age 65, assuming a hypothetical 4 percent return after inflation.
Look to your home equity
If you’ve got equity in your home, you may be able to tap it for retirement money in any number of ways. One option is to downsize.
Have your kids moved out of the house? Don’t really need the extra two or three bedrooms? Then moving may make perfect sense for you, said personal finance expert David Bach, author of “Start Late, Finish Rich.” “And you’re not only going to feel freer and lighter, emotionally and spiritually, but it’s going to make a big difference financially.”
After all, selling your house for $350,000, and replacing it with one costing $275,000 boosts your retirement nest egg by $75,000. Plus, the first $250,000 in profits are tax free ($500,000 if married). (Learn more: Downsizing in retirement)
Would you rather stay in your home as you enter retirement? Consider a reverse mortgage . These government-backed loans allow older homeowners (62 years and older) to convert some of their home equity into cash. (The bank makes payments to you, and you can use the tax-free funds however you would like.) Unlike other kinds of loans, you don't have to pay back the debt immediately. Rather, the balance must be repaid when the last surviving borrower dies, sells the home, or moves out.
Sound complex? It is. “The reverse mortgage is certainly not without risks, either,” said Weston, but unlike years past, it is no longer the loan of last resort for cash-strapped homeowners in retirement. “It’s now being used as part of an overall financial strategy because there are some new safeguards and policy changes that make the product more respectful.”
Be strategic about Social Security
While you may be tempted to start collecting Social Security benefits as soon as you qualify (who isn’t?), try to resist this temptation, said Franklin. “If you’re healthy enough to delay, delay.”
After all, waiting can pay off — big time. Consider this: Between the ages of 62 and 70, your Social Security benefits rise about 8 percent for each year you defer taking them. Where else can you get such a high return (guaranteed!) in today’s environment? Wait until age 70, and your monthly benefit can be 76 percent higher, on an inflation-adjusted basis, than if you claimed at age 62.
“If it’s not financially possible for both you and your spouse to delay, one of you can take the benefits early to bring cash into the household and alleviate the financial pressures while the higher earner holds off until age 70,” said Franklin. “His or her benefits will grow and later ensure the largest possible survivor’s benefit.” (Learn more: Social Security filing strategy )
“This is particularly important since the surviving spouse — generally the woman — may outlive her husband for decades,” said Weston. “She may have exhausted all their assets and may ultimately end up living on Social Security, which I think of as ‘longevity insurance.’ It protects you from being poor in old age.”
According to the Centers for Disease Control and Prevention's National Center for Health Statistics, the average life expectancy for females is 81.2, for males, it’s 76.4.
And longevity is increasing. So working on a three-way strategy with your retirement accounts, home equity, and Social Security may be timely.
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This story was first published in September, 2016. It has been updated.
1 Bankrate, “Survey: 36 percent Not Saving for Retirement,” August 2014.