How to Hit The Retirement Savings Benchmarks if You Can’t Start Early

We can’t all “start early” saving for retirement. Here’s how to catch up and hit the benchmarks to be able to one day retire comfortably.

If you’re behind on hitting the recommended retirement savings benchmarks, the next time someone chirps, “Starting early is the best way to save for the future!” you may be struggling to hold back feelings of rage — and dread. That’s because, unless you’re still in your 20s, you may feel you’ll never be able to save enough to retire. 

These retirement savings benchmarks are from Fidelity, and they suggest saving 1x your income by age 30, 3x by 40, 6x by 50, and 8x by 60. Those numbers may sound daunting but know this: it’s never too late to catch up and be able to retire with confidence. And, if you’re feeling behind, you’re in good company. Today, 57% of American workers think they’re behind where they should be with saving for retirement, according to a recent survey from Bankrate.

So, while the more time our money has to grow in the markets, the better, just because you didn’t step off your college’s quad and run to immediately open a 401(k) doesn’t mean all hope is lost. Here’s a look at a few of HerMoney’s favorite options for earning, saving and investing more to get your balances where they need to be in order to retire comfortably.   

Find As Many Avenues As You Can For Saving More 

We all know the importance of saving money in an employer-sponsored plan like a 401(k), and maxing out when we can. In 2024, people under age 50 can contribute a maximum of $23,000, and those over 50 can contribute $30,500. But what about matching contributions from an employer? 

Your employer match should be something you look at closely whenever you’re considering taking a job, says David Blanchett, Managing Director, Portfolio Manager and Head of Retirement Research for PGIM DC Solutions. While some employers will match dollar-for-dollar up to a certain amount, others will only match 50% or 25% on the dollar. According to recent stats from the investment management company Vanguard, the most common matching formula is $0.50 per dollar on the first 6% of pay. But some employer matches aren’t that generous — and some employers don’t match at all. With this in mind, it’s not enough to simply know that your employer offers a 401(k) — you’ll need to do some digging to make sure you understand the exact match and all the specifics. 

Blanchett recommends asking: “‘How much do you have to save to get the match?’ and ‘What are the provisions around the match?’ There could be some kind of minimum period of employment required for you to actually get the match, and a lot of folks might not be there long enough,” he says. 

Another tax-advantaged account that allows you to grow your money is a health savings account or HSA, which features a triple-tax advantage —  there are no taxes when you put your money in, while you grow your money, or when you take your money out for qualified medical expenses. 

“We’re often asked if people have to choose whether to save in an HSA or for retirement,” says Begonya Klumb, head of health and benefit accounts at Fidelity. “The short answer is you can do both, and it’s beneficial if you can do both.” In fact, Klumb says that Fidelity customers who have both a defined contribution retirement account (like a 401(k)) and an HSA saved more on average than those saving solely in their retirement account. And while money in your HSA can be used for qualifying health expenses anytime, once you turn 65, those funds can be withdrawn for any reason with no penalty — essentially turning your HSA into a traditional 401(k) or IRA. (With one important difference: Unlike 401(k)s and IRAs (minus the Roth IRA) which have required minimum distributions (RMDs) when you turn 73, HSAs are not subject to the same requirements.) 

Bank Those Raises

Another great way to catch up is to put any raises you receive from your employer straight towards retirement, Blanchett suggests. All too often we “spend what we earn,” and while learning to put our raises away for the future can be a challenge, it can also be an incredible benefit once we retire.

By saving your raises, “it reduces the amount you actually have to replace when you eventually retire,” Blanchett explains. Think about it this way: “Let’s say you’re making $50,000 a year at the age of 30. If you’re making $100,000 a year at the age of 60, you’re going to live off of $100,000 a year… But if you’ve been saving more of your raises over time, maybe you’re only living off of $80,000.” In this way, we can ensure that our retirement standard of living stays more in line with our present-day standard of living — and saving to replace an $80,000 annual salary is much easier than saving to replace a $100,000 one! 

Work Longer

Hear us out on this one. We’re not saying you need to work an extra decade. Even a few months can make an enormous difference. According to the National Bureau of Economic Research, working just an extra three to six months can boost your retirement income by the same amount as if you’d increased your retirement contributions by 1% over your last 30 years of employment. “Working longer is the silver bullet,” Blanchett says. “If I had to pick the one thing you can do to improve your outcomes, it would be working longer. Every year you stay employed gives you one more year to save money. It gives you one less year that you have to spend money for retirement. It lets you delay claiming social security and lets your assets grow an additional year.”

Just keep in mind that working longer isn’t a panacea — and it shouldn’t be your only move. Blanchett cautions that most Americans don’t end up working until their target retirement age: “People retire three years earlier on average than they expect to do so,” he says. Whether you face a health concern, a layoff, or you simply want to enjoy more time with your grandkids, it’s never smart to put yourself in a position where you have to work. 

Delay Taking Social Security 

“Each year you delay Social Security from your full retirement age (until 70), you get an 8% bump in pay,” explains Jarrod Sandra, Certified Financial Planner and owner of Chisholm Wealth Management in Crowley, Texas. Or, to think of it another way, “filing at 62 is a 30% reduction in your full retirement benefit,” he says.  

And although this can be an amazing lever to pull, waiting until 70 to take Social Security (much like planning to work till you’re 75) is often easier said than done. “Everyone’s situation is different. I look at health concerns and family history, spousal benefits, where cash can come from before Social Security is turned on, etc. So, there may be a case for turning it on as soon as possible or delaying as long as possible. It’s best to discuss with an advisor or Social Security expert who can understand the dynamics more,” Sandra explains. 

Particularly in situations where someone is healthy and has a family history of longevity, they may want to delay taking benefits. On the flip side, if someone is “relying on Social Security to fill a large chunk of their spending need” it isn’t always possible to delay. Only you and your financial planner will know what’s best for you — but if you’re able, that 8% bump in pay can be a very good thing. 

reprint from HerMoney newsletter – October 2024