What to do if You’re behind in Saving for Retirement

Why do people fall behind in their saving for retirement, and what can they do about it?

There are a number of reasons people don’t save as much for retirement as they’ll eventually need.  Here are a few:

* Many people don’t even think about this issue, especially when they’re young.  Delayed gratification is one thing, but taking actions at age 20 or 25 or 30 because it’ll better position you 50 years later?  Not many people have the foresight to discipline themselves to that degree.  Plus, they typically haven’t calculated out how much they’d have to save anyway.

* Sometimes even if you know how much you’d need to set aside, and you want to save it, it just feels like you more urgently need that money now, to handle your present situation.

* Investment fluctuations can leave people with a lot less than they thought they’d have as they get older.  Think about some of the downturns there have been in the stock market rollercoaster in recent years.  At market high points, a person might well have been substantially ahead of the pace in saving for their retirement.  Six months later they might be substantially behind that pace.

* People are living a lot longer.  Maybe you started setting money aside 20 years ago, and today you are doing fine in terms of building savings for the life expectancy of 20 years ago.  But that might still leave you behind relative to your true life expectancy today.  If the amount of money you’ve saved so far will leave you broke at age 85 or even 90 or 95, you need to work on setting aside some more to be on the safe side.  That’s a problem people didn’t face in earlier generations.

OK, so let’s say you are behind where you should be in saving for retirement, for whatever reason.  What should you do?

1. Take a long term view.

Perhaps the reason you’re feeling a little anxiety on this score is that your IRA mutual fund has been struggling lately.  You’re 50, and you’ve really made no progress since age 45, because your stocks have dropped enough to counteract all the money you’ve added to your IRA these last few years.  For quite awhile there you were coasting along, feeling good, watching your retirement money increase, but not any more.  If things continue like this, you’ll be well short of where you wanted to be by the time you retire.

But that’s just it.  They won’t continue like this.  Assuming a permanent trend when you’re on a downturn is as misguided as assuming a permanent trend when you’re on an upswing.  If you’re invested in something like the stock market, there are years you’ll do better than the pace you need to be on, and years you’ll do worse.  That’s fine, as long as overall your pace is where it ought to be.

Just keep contributing what you need to, and don’t worry if your money doesn’t compound like it should for a year or two, because other years it’ll do better than necessary.  That is if you stick with what you’re doing and don’t panic by trying to “catch up” with higher risk/higher reward strategies that could really put you in a hole for your retirement.

2.  Contribute more.

If you’re behind the pace in saving for retirement, the simple solution is to save more.  If you’ve been saving $5,000 a year, or 10 percent of your income or whatever it might be, and that’s not cutting it, bump it up.

Easier said than done, you might think.  Really?  Is it really that hard?  What if something else came along in your life that required a little belt tightening?  People lose jobs, take pay cuts, have unexpected car expenses, have unexpected medical expenses, take time off to go back to school, add another member to the family, and on and on, and they somehow manage to do it.  Just imagine something like that happened and you had to squeeze out another $3,000 or another five percent or what have you, and think about how you’d do it.

It might mean working slightly more hours, maybe averaging 44 hours a week on the job this year instead of 42.  It might mean being a little more disciplined in your spending, like getting into the habit of using less electricity, eating out a little less often, taking a slightly less expensive vacation.  It might mean delaying retirement itself for a year or two beyond what you’d anticipated, working at least part time a little while longer to accumulate a few more paychecks.

One way or another, you can earn a bit more or spend a bit less in order to free up the money you need to save for retirement.

3.  Don’t think it’s too late.

If you’re close enough to retirement age that however you crunch the numbers it still doesn’t give you what you need, don’t despair of saving.  However inadequate it looks like your savings will be if you start putting aside money today, they’ll be a lot worse if you don’t.

Even just contributing the maximum to an IRA for the last five or ten years before you retire is a lot better than nothing.  Yeah, it’s great if you started your retirement savings with your lemonade stand money at age seven and it’s been compounding ever since, but you have to make the best of the situation you’re in.

Keep these points in mind, and by being sensible and disciplined, you can mitigate if not reverse whatever damage you’ve done by falling behind in your retirement savings.


“Behind on Money? The Secret to Catching Up”

“How Behind Are Your Retirement Savings?”