If you’re behind on your retirement savings, now is the time to take action. As the best tool for building long-term wealth is time, the later you start, the bigger the mountain you’re going to have to climb – so there’s no time to lose.
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But this doesn’t mean that you can’t reach your goals, even if you start late. If you’re willing to do some heavy lifting, you may very well be able to catch up to where you should be. Just remember that the sooner you can start, the better.
One of the best ways to catch up on your savings is to boost your retirement plan contributions. Retirement plans offer a number of benefits that can help you reach your financial goals.
If you contribute to an IRA, you can usually take a tax deduction on the money you put in. With a 401(k), your contributions are made on a pre-tax basis. Meanwhile, your contributions and earnings grow tax-deferred until you withdraw them.
If you’re at least 50 years old, you can take advantage of catch-up contributions, one of the most beneficial features of retirement plans. For 2025, you can put an additional $1,000 into your IRA accounts, for a total maximum of $7,000. But the big opportunity comes with 401(k) plans, which allow catch-up contributions of $7,500 per year, for a total maximum contribution of $31,000.
If you’re able to sock away that amount of money, you can make up your retirement shortfall pretty quickly.
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Although there is a path to retirement prosperity even if you’re starting from behind, there’s no way around the fact that you’re going to have to make some sacrifices. If you plan to boost your retirement account contributions, for example, that money has to come from somewhere. In most cases, you’ll have to trim your expenses.
Dropping some of your streaming subscriptions, eating out less and cutting down on travel could save you thousands of dollars per year. Although your quality of life might temporarily suffer, it may be a sacrifice you may need to make to shore up your retirement security.
If you’re in your 40s or 50s and behind on your retirement savings, you might have an ace up your sleeve in the form of your home equity.
Imagine that you bought a home for $250,000 at age 30, for example. Between decades of paying your mortgage and your home’s price appreciation, you may have a few hundred thousand dollars in equity that you could access by downsizing. This can be a particularly attractive move if you have children who no longer live in the house.
Swapping a three- or four-bedroom home for a one- or two-bedroom one could free up a lot of your capital that you could use to invest in the stock market or some other higher-earning investment. Perhaps even more importantly, it could dramatically reduce your monthly expenses, from the size of your mortgage to your utility and maintenance bills. This money could then be diverted to your investment accounts.
Although trimming expenses can be a big help, generating additional income is another great way to help you catch up on retirement savings.
Creating multiple streams of income is a sound financial practice in general, but it’s particularly helpful if you’re trying to amp up your retirement savings. Working a side gig or second job or even renting out an extra room in your house can all be ways to generate the extra money you’ll need to add to your savings.
No matter how much extra income you make, it’s hard to build wealth without saving and investing it.
If you’re far behind on your retirement goals, you might have to take on some extra risk to reach them. Of course, this doesn’t mean you should dump all your money into a speculative asset like Bitcoin and “hope for the best.” But it does mean that you will have to invest in something more aggressive than a high-yield savings account or Treasury bills.
While conservative investments might provide an average return in the 4% range, a blended portfolio that includes stocks might get you closer to 6% or 7% per year. If you’re trying to max out the growth in your retirement account, that extra few percent per year can make a big difference over the long run.
Just always be sure that any investments you choose meet your financial objectives and fall within the parameters of your own personal risk tolerance.
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This article originally appeared on GOBankingRates.com: Here’s How To Catch Up on Your Retirement Savings If You’re Falling Behind