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Catch-Up Strategies for Financial Security in Later Life

November 2019

Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension

It is not uncommon for people to get a late start on their retirement savings. When they get older, or do an online calculation such as the Ballpark Estimate, they realize that they have a lot of catching up to do. What to do? There are basically two courses of action: save more before retirement and/or spend less after retirement. Below are six ways to save more money before retirement:

  • Increase Retirement Savings: Raise the percentage of your pay that is put into a tax-deferred retirement saving plan such as a 401(k). Even a 1% boost can make a big difference over time.
  • Spend Less and Pay Off Debt: Reduce expenses, especially "discretionary" items such as food, clothing, and entertainment, and redirect this money to savings.
  • "Moonlight" for Additional Income: Look for ways to earn extra income through "side hustles" and save all or part of this income for retirement.
  • Invest More Aggressively: Increase the percentage of your investments in stock or stock mutual funds. You will take on more risk but will also have the potential for a higher long-term return vs. cash assets and bonds.
  • Preserve Lump Sum Distributions: Reinvest lump sum distributions when you leave a job into a rollover IRA or a new employer's retirement savings plan to keep this money tax-deferred until retirement.
  • Work Longer Before Retiring: Decide to remain on the job longer than planned. Even 1-2 years can make a big difference by providing more years to save and accrue benefits and fewer years to withdraw savings.

Below are six ways to spend less money after retirement:

  • Trade Down to a Smaller Home: Consider moving to a smaller living space for reasons that include lower maintenance, lower utility bills, and lower property taxes. Disadvantage: having to downsize.
  • Geographic Arbitrage: Consider moving to another location where you do not have to downsize and will have lower living costs and property taxes. Disadvantage: moving away from familiar people and places.
  • Work After Retirement: Consider some type of paid employment or self-employment to supplement Social Security and other income sources. Earnings will reduce the amount the amount of savings required.
  • Tap Home Equity: Consider ways to convert equity in your home into a stream of income. Two common strategies are taking out a reverse mortgage and selling your home to a relative who rents it back to you.
  • Spend Less: Prepare a budget that is aligned with your anticipated retirement income. Identify expense categories that can be trimmed, if necessary. It is also not uncommon for expense reduction to occur naturally, as older adults realize they have "enough" of certain items such as clothing and home furnishings.
  • Make Tax-Efficient Asset Withdrawals: Decide whether to take withdrawals first from taxable or tax-deferred accounts. For many people, it makes sense to withdraw money first from taxable accounts, then tax-deferred accounts, and then Roth IRAs to allow tax-deferred accounts to grow as long as possible.