Playing Catch-Up

DOESN’T LOOK LIKE you’ll have enough saved for retirement? Here’s how you could get back on track:

• Save like crazy. You might take advantage of catch-up contributions to 401(k) plans, IRAs and health savings accounts. This can allow you to sock away thousands of dollars more each year on a tax-favored basis.
• Slash your expenses. Get all debts paid off. Trade down to a smaller home now rather than waiting for retirement.
• Delay retirement. Suppose you put off retirement from, say, age 65 to 67. That will give you two more years to save and two more years to earn investment returns. You can also put off claiming Social Security and buying an income annuity for two additional years, which will give you extra income.
• Annuitize more of your savings. The best annuity available is Social Security. Already planning to delay Social Security until age 70, so you get the largest possible monthly check? If you want more guaranteed income, you might buy an immediate fixed annuity when you quit the workforce. Retirees are often reluctant to buy income annuities. But this can be a good strategy if your goal is to squeeze maximum lifetime income out of your savings.
• Work part-time in retirement. Suppose you can make $10,000 a year working part-time. That is like having an investment portfolio that is $250,000 larger, assuming a 4% withdrawal rate.

One warning: Don’t try to compensate for your modest savings by gunning for outsized investment returns. That risky approach may backfire or you might panic during a market decline, thus ruining any chance of a comfortable retirement. What if your situation seems hopeless? In the next section, we’ll discuss one possible strategy for those in rough financial shape.

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