5 strategies to catch up on your retirement savings

Jason R. Friday, CFP®, MPAS®, RICP®, CMFC, Head of Financial Planning | Citizens Wealth Management

_{As Head of Financial Planning, Jason is a strategic partner who is responsible for developing the strategy, managing the planner teams, and coordinating personal financial planning activities across Citizens Wealth Management to help clients navigate and grow in changing circumstances.}

Is your retirement plan on track? If you're currently thinking "what plan?" you're not alone. According to an AARP survey, 20% of adults over age 50 have no retirement savings and 61% are concerned they won't have enough to support their retirement.

If you're feeling behind on your retirement savings, there are strategies that could help you to make up for lost time. Consider these action items for how to catch up on retirement savings to get your plan on track.

1. Reduce spending and debt

You may need to trim other expenses to increase your retirement contributions. Take a close look at your spending patterns to see where you can cut back, and direct that money toward retirement.

If you don't have one already, now's the perfect time to make a budget. A budget lets you compare your income to expenses and set goals. You can see how much you're spending compared to what you earn and adjust as needed so that you know exactly how much you can contribute to retirement.

Making a budget could also help you get a handle on your debt. Prioritizing paying off high-interest debt and setting spending limits may put you in a better position to save money. Small changes can make a big difference over the long term.

2. Make, save and invest more

Even with a budget and trimming your expenses, you may still come up a little short each month or find it difficult to save for your long-term goals. If that's the case, consider ways to make more money or make your money work harder for you.

Options include:

• Delay retirement or work part-time early in retirement: Age 70 is the new 65. If you're approaching retirement age and are concerned about how much you have saved, consider working a few more years. This could help you delay spending down your retirement account and give yourself extra time to save.
• Invest bonuses and pay increases: Any time you receive a bonus or a raise, direct the additional money into an investment account.
• Invest any windfalls: Whether it's from a lucky lotto ticket or an inheritance, invest any windfalls you receive.
• Start a side hustle: Whether it's finally launching your craft business or picking up freelance work, a side hustle could provide an extra income stream.
• Invest funds from low-yielding accounts: Do you have extra money in a savings or money market account? Depending on the severity of your retirement shortfall, you could consider taking a portion of those funds and investing them with the hopes of higher returns.

Investing involves risk, so you'll need to consider how far away you are from your goal before trying to close the gap through investments. But in exchange for taking on risk, moving funds from lower-yielding accounts to a new or current investment portfolio could provide an opportunity for higher returns.

3. Max out your 401(k) contributions

If your employer offers a 401(k), make the most of it. At a minimum, aim to take advantage of any employer match program. If you're able to do more, the 401(k) contribution limit for 2025 is $23,500 for those under 50 and $31,000 for those 50 and older.

Maximizing your 401(k) could be the turnaround you're looking for in growing your nest egg. For example, if you have $0 in retirement savings at age 40 but start contributing $23,500 a year for the next 25 years, your 401(k) could grow to almost $1.5 million assuming a hypothetical 7% annual rate of return.

Similarly, if you're 50 and start contributing the maximum $31,000 per year for 15 years, your 401(k) could be worth nearly $800,000 (under the same hypothetical scenario).

4. Max out a Roth IRA

Outside of your 401(k), you can open or max out your contributions to a Roth Individual Retirement Account (IRA) if you satisfy the necessary requirements based on income and tax-filing status.

If you are single and earn less than $150,000, you can contribute up to $7,000 to a Roth IRA in 2025, and those over 50 can contribute an additional $1,000 a year. Your contribution limit is reduced if you earn between $150,000 and $165,000. Married couples who file a joint return can make the full contribution if their joint income is less than $236,000 and a partial contribution if their income is between $236,000 and $246,000.

Contributions to Roth IRAs are made after taxes, but withdrawals are tax free as long as the account has been open for at least five years and you are age 59½ or older. Certain exceptions apply that may allow you to withdraw from Roth IRAs early without being penalized.

There are no required minimum distributions (RMDs) for Roth IRAs, so you can delay taking withdrawals for as long as you choose. This could allow you to leave the funds invested for additional time before needing to tap into it. Meanwhile, RMDs for traditional IRAs typically begin at age 72 or 73, depending on your date of birth.

5. Seek other investment opportunities

If you're looking for additional or alternative ways to reach your retirement savings goals, there are options. Here are a few to consider:

• Mega backdoor Roth: If your income is above the contribution limit for a Roth IRA and you have a 401(k) at work, you may be able to take advantage of the Roth's tax savings through a mega backdoor Roth. To qualify, you need to have a 401(k) plan that allows for after-tax contributions and that lets you move or rollover those contributions. It can be a bit tricky to set up, so your best bet is to talk to a financial professional.*
• Health savings account (HSA): If you have an HSA but you don't need to use it for medical expenses, you can make withdrawals to cover other costs. However, keep the tax penalties in mind. If you are age 65 or older, you can make non-qualified withdrawals, but you must pay regular income tax on those distributions. If you are under 65, you will incur an additional 20% tax for non-qualified withdrawals. Meanwhile, withdrawals for eligible medical expenses remain federal tax free regardless of your age.
• Taxable investment account: If you still have money to save after you've hit your max on your 401(k) and IRA, consider investing it in a standard brokerage account. While it wouldn't have the same tax advantages as a 401(k) or IRA, there are no annual contribution limits on a standard brokerage account.

Let a Citizens Wealth Advisor* help you plan for your golden years

If you're behind on retirement savings, there's no better time than today to take action. The right strategies could accelerate your savings and provide you with more confidence in achieving your retirement goals.

Preparing for retirement can be a complex and challenging journey, but we are here to help guide you. A Citizens Wealth Advisor can help you balance saving for the short term with investing for the future. Contact a Citizens Wealth Advisor today for a personalized financial plan* that fits your goals.

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