If I Were Behind on Retirement Savings, This Would Be My Game Plan

The sooner you start investing for retirement, the more likely it is you’ll end up with a generous nest egg. Unfortunately, not everyone can begin putting away money when they’re young since there are often many pressing life expenses to cover.

If you’ve fallen behind in retirement savings, you don’t have to give up hope of financial security in your later years. There are plenty of ways to catch up. To help you salvage your retirement, three Motley Fool retirement experts share what their solutions would be if they were behind in their saving efforts.

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Make sure I’m investing aggressively enough

Katie Brockman: If I were falling behind on my retirement savings, one of the first steps I’d take is to double-check my asset allocation and ensure I’m investing aggressively enough.

Your asset allocation refers to how your investments are divided within your portfolio. Most investors will have a mix of stocks and bonds in their portfolios, and exactly how much you’re investing in stocks versus bonds will determine how quickly your savings grow.

While bonds tend to carry less risk than stocks, they also experience lower returns. The S&P 500 has historically earned an average rate of return of around 10% per year, while bonds may only earn average returns of roughly 4% to 6% per year. Although that may not sound like a significant difference, it can affect your long-term savings by hundreds of thousands of dollars.

To earn as much as possible in the stock market, it’s wise to invest relatively aggressively. This doesn’t mean you should invest your life savings in extremely high-risk stocks, of course. But it does mean you should be allocating more of your portfolio to stocks than bonds.

Exactly how much you should invest in stocks will depend primarily on your age. One general rule of thumb is to subtract your current age from 110, and the result is the percentage of your portfolio you should allocate to stocks. So if you’re 40 years old, for instance, you might invest around 70% of your portfolio in stocks and 30% in bonds. This also means that as you get older, your portfolio should gradually become more conservative.

Investing heavily in stocks may be intimidating, especially when the market is volatile. But remember that market downturns are only temporary, and when you have decades left to save for retirement, it’s very likely your investments will recover long before you need that money.

Delay Social Security

Maurie Backman: It’s easy to see why so many people fall behind on retirement savings. When you’re younger, income is often monopolized by near-term goals like paying off debt or saving for a house. Then, in your 30s and 40s, it’s easy to run out of money for your IRA or 401(k) plan when you’re grappling with mortgage payments and child care costs.

If I were behind on savings, boosting my contribution rate later in life would perhaps only get me so far. So what I’d try to do in that case is delay my Social Security filing.

When you hold off on claiming Social Security beyond your full retirement age, your monthly benefits get a boost. That, in turn, could compensate for a lack of savings.

For example, someone entitled to a monthly Social Security benefit of $1,500 at age 67 could grow that benefit to $1,860 by filing at age 70, which is the latest age to snag a boost along those lines. And to be clear, that boost would be permanent — you’d collect a higher monthly benefit throughout retirement.

While Social Security should not take the place of personal savings, if I were behind on building my nest egg, I’d aim to squeeze as much money out of the program as possible. At the same time, though, I’d also aim to sneak more money into my IRA or 401(k) when opportunities present themselves.

Work for a few extra years

Christy Bieber: If I fell behind in retirement savings, my primary concern would be to find a way to ensure the money I have invested would provide enough financial support for the rest of my retirement. To achieve this objective, I’d work a few extra years.

By putting in more years on the job, I’d be able to delay making withdrawals from my nest egg. My investments wouldn’t have to support me for as long of a time. That would allow me to choose a higher withdrawal rate, so the limited amount I had invested would produce sufficient funds to cover the necessities.

Working longer could also be helpful for a few other important reasons. First, delaying retirement would make it easier to wait to file for Social Security, as my colleague suggested. I’d also be able to keep making contributions to my retirement investment accounts during the extra years I work. And, since older workers are eligible to make catch-up contributions to 401(K) and IRA accounts, I’d hopefully be able to make more tax-deductible contributions to bulk up my nest egg as much as possible.

By delaying my Social Security claim, waiting a few extra years to retire, and ensuring I had the right asset allocation, hopefully I’d end up with plenty of money to retire without financial worries. And these are all techniques that anyone can use if they’re behind where they’d like to be in terms of investing for the future.

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