June 1, 2020

Edited 06/15/20

I’m Way Behind in Retirement Savings— So Now What?

What to do when you’re 50+, haven’t saved enough for retirement, and don’t know if you can afford to save more.

Amy V.* is 53, and on the high end of Gen X — has not saved enough for retirement but can easily change that around. 

The Washington, D.C.-area resident is a marketer by day — with side gigs as a freelance writer and graphic designer. And by night, she defies age-related presumptions as the singer/guitarist of a local hard rock band. She and her husband, 50, have no kids, and love going out till the wee hours of the morning — especially to rock concerts, which can run upwards of $50 per ticket. Neither are heavy drinkers who run up high bar tabs, but both enjoy going out to eat at least 2-3 times per week. 

Saving Up for Retirement

Both Amy and her spouse make about $80,000 per year (each) and have contributed about 3 to 6 percent of their income to employer-match 401Ks since their 30s (sometimes less, sometimes more, depending on their jobs). However,  she hadn’t thought much about retirement — until now. Over the last 12 months or so, every possible challenge a person can endure — family, health, financial — has surfaced. 

In 2019, Amy had to endure two surgeries, which were mostly covered by insurance but still cost several hundred in out-of-pocket expenses. Not to mention, Amy isn’t crazy about her job; she’d like to make more money so she wouldn’t have to freelance during her free time. However, freelancing yields an additional $4,000 a year (to the tune of $30 to $50 an hour, which is on the low end of the market rate for the services she provides, within her respective geographic area). 

But more than a new job, Amy would like to retire in the next decade or so, with enough saved up to do just that without sacrificing her standard of living. She just doesn’t know if she can afford to quit, or when.
In that regard, she’s not alone. According to Northwestern Mutual’s 2019 Planning & Progress Study, more than a fifth (22 percent) of Americans — and 17 percent of Baby Boomers — have less than $5,000 saved for retirement. Among Gen X-ers like Amy, 21 percent have less than $5,000 saved for retirement and 22 percent have less than $5,000 in personal savings.

Analyzing Amy’s Situation

Although Amy hasn’t stashed away quite as much money as she would have liked, her situation isn’t entirely bleak. 

“It is great that she and her spouse have been saving since their 30s,” says Mychal Campos, investment professional. “However, they may find themselves behind because of the relatively low contribution level they have maintained.” 

Also, any additional salary raises should be put toward retirement savings and not used to expand their lifestyle, he adds. So, if, say, Amy brings home an extra $2,000 in a single month for a freelance writing assignment, that money should be stashed away into emergency savings, rather than put toward a lifestyle expenditure or material possession (e.g., an expensive designer bag). 

His suggestions for Amy and others in their 50s, who are afraid they haven’t saved enough: 

  • Assess your financial situation. When asked how much her portfolio was worth, and how much she’d saved over the decades, Amy’s first response was “I don’t know.” Having awareness of this number — and the number you’d like to achieve — is the first necessary step toward a healthy retirement and financial freedom. It is the starting point from which someone in their 50s can set sensible goals that will materialize in 15 or 20 years. 
  • Increase contributions. “They should immediately consider how they can increase their 401(k) contributions so that they are growing their nest egg as much as possible,” says Campos. “She should at least increase her contribution amount by the amount she expects to earn from her freelance gig.” 
  • Make small trims, and seek additional income opportunities. “Making small changes such as slight and regular increases to savings or cutting expenses can be less painful and may have a low impact on their daily lives,” says Campos. “Keep the freelance job for now as that extra income is necessary for additional retirement savings.”

Reality Check

When asked what she would be willing to cut back on in order to save more for retirement, Amy immediately cited lifestyle expenses — such as beauty treatments (e.g. gel manicures) and eating out several times per month. But she might want to also consider the bigger stuff, says Campos. 

“They should first look at their largest expenses like housing and health care,” says Campos. “There may be opportunities to reduce those costs like refinancing or downsizing. From there, they can look at smaller items such as hobbies, subscriptions, and flexible spending items such as entertainment. Even finding small ways to save will allow them to not only save more now but will lower what they need from their savings during retirement.”

She should also consider elevating her freelance rate to match her experience. Asking her career peers what they would charge for a service and charging a similar rate (e.g., $50 to $75 per hour) will potentially beef up her freelance income, so she doesn’t have to cut all of the little things she loves. 

And it may be time to start thinking about a retirement that is in a less-expensive city than Washington, D.C. 

“This is something they may not want to consider at this time, but thinking about how a relocation may allow them to have a higher standard of living could be wise for their retirement years,” he says. “She still has several years until normal retirement age and these changes will have an impact on their ability for a long and happy retirement.”