If you’re behind on saving for retirement, you’re not alone. In fact, six in 10 Americans say that they need to catch up on their retirement savings. But we’ve got good news. Even if you’re late to the game, it’s still totally possible to reboot your retirement plan and catch up.
Whether you’re 30 or 50, as long as you’re willing to make some changes to your financial habits, you can get back on track. And the sooner you start, the more time your money will have to grow and accumulate interest.
Ready to give your retirement plan a boost? Read on to find six simple strategies, including increasing your savings rate and downsizing your home.
6 ways to reboot your retirement plan
1. Increase your savings rate
The best thing you can do to catch up on retirement savings is to increase your rate of savings. Most experts recommend that you set aside at least 15% of your income every month for your retirement. But if you’re starting later in life, you’ll likely need to save more than that. To determine how much of your income you need to sock away each year, you can use a retirement income calculator.
Once you have a savings rate in mind, make a plan that will help you achieve it. This plan might involve cutting down on nonessential purchases like dinners out, or picking up a side job to increase your retirement contributions.
2. Take advantage of catch-up contributions
If you’re 50 or older, you can make catch-up contributions to your IRA and 401(k). In 2020, you can contribute up to $6,000 to your IRA, plus an additional $1,000 catch-up payment (the same as 2019). You can also add an extra $6,500 to your 401(k), bringing your total 401(k) contribution limit to $26,000 (up from $25,000 in 2019). If you make these extra contributions over the next decade or so, they can significantly increase your nest egg.
If you’re under 50, you should still try to max out your contributions. But if you can’t afford to contribute the maximum, just contribute as much as you can to tax-protected retirement accounts.
3. Downsize to a less expensive home
Another way to reboot your retirement plan is by downsizing to a less expensive home. Doing so will lower your mortgage payment and help you put more money into savings each month.
Alternatively, if you’ve already paid off your home (or at least built up significant equity), you could use the proceeds from the sale to buy a cheaper home in cash and save the difference. Completely eliminating your mortgage payment will improve your cash flow, letting you to make larger contributions to your retirement accounts.
4. Take out a reverse mortgage
Another way to use the equity in your home to increase your retirement income is to take out a reverse mortgage. When you reach age 62, you can take out a Home Equity Conversion Mortgage. This type of loan lets you borrow against your home’s equity and receive a lump sum, line of credit, or fixed monthly payment to supplement your nest egg. You’ll still be able to live in your home, and you don’t have to repay the loan until you move out or pass away. So if you’re behind on retirement savings, a reverse mortgage is a good way to cover expenses during your golden years.
5. Cash-out your life insurance policy
If you have a whole, universal, or other permanent life insurance policy, you can use it to create an extra stream of income in retirement. How? By converting your policy into an annuity and receiving a payment each month. Alternatively, you can surrender the policy and receive the cash value it accumulated as a lump sum.
However, this option comes with a catch. If you cash out your policy or turn it into an annuity, you’ll lose your death benefit. You’ll have to weigh the pros and cons to decide if cashing out your life insurance policy is right for you.
6. Delay retirement for a few years
Of course, the prospect of delaying your retirement is not an alluring one. But working a few extra years can give your investments extra time to grow, increasing your retirement income. Plus, although social security benefits are available at the age of 62, cashing out early can cost you up to 30% of your benefit amount. Waiting until you reach full retirement age, on the other hand, earns you your full benefit. You’ll likely enjoy your golden years much more if you don’t need to pinch pennies and worry about bills, so extending your career may be worth the extra effort.
Hire a professional to help you reboot your retirement plan
It’s easy to fall behind on retirement savings. Between rent, student loans, and healthcare costs, it’s hard to find room in your budget for investing. And once you get off track, catching up can feel daunting. Luckily, these strategies can help you enjoy your retirement in comfort and style.
If you still feel overwhelmed or if you want personalized professional advice (never a bad idea), you should reach out to a retirement financial advisor. These firms can help you plan for your retirement and come up with custom savings and investment strategies that work for you.
Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.