Retirement Savings — Catching Up

Some investors who are earning solid salaries as they approach retirement have saved so little that catching up on their savings could seem daunting. The obvious solution is to save much more. But even a relatively modest increase in retirement savings can make a difference, when combined with other steps that postpone the time when that money needs to be tapped.

For example, you are 50 years old, earn $100,000 a year, receive 2% annual raises, have one year’s salary already saved and contribute 10% of your pay to 401(k) and other retirement accounts each year. Given those assumptions, you will end up with just over $500,000 at age 65, if your retirement savings earn 6% a year after expenses.

If you increase your savings rate to 15%—the figure many advisers recommend shooting for over the course of a career—your balance would climb to almost $645,000. Boost your savings rate to 20% a year and you would end up with nearly $780,000.

The problem is that those are ambitious goals, particularly for someone who already has struggled to save enough along the way. But you can still improve your situation significantly by combining a smaller increase in your savings rate with a few extra years on the job. For example, if you increase your saving rate from 10% of salary to 12%, your nest egg would climb to nearly $565,000 by age 65, assuming the same 6% annual return—an improvement, but not a huge one. But if you also continue to work and save for another three years, the combination of additional annual savings plus three more years of investment gains could raise your balance to nearly $725,000. That is roughly $80,000 more than you would have had by saving 15% a year until age 65, and not far below the sum you could have accumulated with a 20% savings rate.

Working a few more years also could help close the shortfall in another way, if it allows you to postpone taking Social Security benefits. Each year you postpone taking benefits beyond age 62, up to age 70, can increase the amount you receive by roughly 7% to 8%. Married couples have an even greater opportunity to squeeze more from Social Security, as they can employ a variety of claiming strategies to try to maximize lifetime benefits. For example, if a 65-year-old husband earning $130,000 a year and his 62-year-old wife who earns $65,000 start taking Social Security at 65 and 62, respectively, they might receive just over $1.1 million in today’s dollars in joint benefits over their expected lifetimes. If instead the wife waits until 63 to take benefits, and the husband files a “restricted application” at age 66 to receive spousal benefits and then switches to his own benefits at age 70, they could collect roughly $1.3 million.

There is yet another way to help make up for a retirement-savings shortfall, by continuing to work in some way in retirement. Earning even a relatively small amount can significantly enhance your retirement security. If, for example, you earn $20,000 a year working part time and you are able to reduce withdrawals from your savings by an equal amount, the same pool of savings would be roughly $270,000 larger after 10 years than it would have been had you not worked, assuming a 6% annual return on your savings.

Be careful: If you work and collect Social Security benefits when you are below full retirement age, which is between 66 and 67 for people born after January 1, 1943, your monthly benefit could be reduced if your earnings exceed certain thresholds, though it may be recalculated and raised when you reach full retirement age. To see what types of jobs are available for retirees and pre-retirees, you can check out sites like and

Short of a gargantuan savings effort, no single strategy may be able to fill in the gap if you have fallen far behind in saving for retirement. But a variety of moves may make any shortfall far less imposing.