Not having enough saved for retirement is a very common fear, and when that's indeed the case, it likely means you won't be able to retire when or how you want.
But if you're behind on your savings goals, all hope is not lost. There are four things you can do in the years leading up to your retirement that can help you catch up and close any gaps.
Assessing your situation
As scary as it may seem, getting to the place you want with your retirement savings will involve taking off the blindfold and honestly evaluating where you are relative to where you should be. This starts by thinking about what retirement will look like for you. How old will you be? What expenses and income sources will you have?
Next, you should look at where you are now. How much do you have saved? How much are you currently saving each month toward your goals? What type of rate of return are you earning? You can then project how much your accounts could grow using your historic average rate of return. For example, if you currently have $15,000 saved, earn 8% on average, and plan on retiring in 25 years, your account would grow to $102,727 (without making any additional contributions).
Create a budget
Once you've done this, you can figure out how well you can meet your retirement needs if you make no changes. Taking 4% or less from your savings every year is a common strategy to avoid running out of money. So if your accounts grow to $100,000 by the time you retire, you can withdraw $4,000 each year. If you determine that your income needs after accounting for your income sources, like Social Security, total $20,000, you will have a shortfall of $16,000 each year. You can help close this gap by creating a strict budget.
An account balance of $500,000 would get you the $20,000 you want to spend annually. This means that you would need an additional $400,000 saved by the time you retire. It may seem like an impossible goal, but if you can save $5,000 every year, it can be done -- assuming you can earn the same 8% rate of return on average over the same period of time.
If you are having a hard time coming up with an extra $5,000 each year, you should start examining your expenses -- making sure that you distinguish between which are needs and which are wants. Finding extra money by cutting out some of your discretionary spending is possible, but eliminating things like your rent or mortgage is probably not feasible. You may also free up extra money that you can redirect to your savings by reducing monthly bills and high-interest debt.
Re-envision what retirement looks like
It's possible that even after doing all this, you still have a shortfall -- but that does not mean you can't retire. One possible solution you can consider is working longer so you have more time to save and take advantage of potential stock market appreciation. If you have 30 years instead of 25, you can grow your accounts to the $500,000 needed with only $2,850 in contributions each year earning an average rate of return of 8%.
If the thought of working a nine-to-five past a certain age is out of the question, you can think about working part-time -- just enough to cover the gap in your income. So if you can only grow your accounts to $300,000, you could generate $12,000 in income with a 4% withdrawal rate and earn the last $8,000 from part-time work.
You can also work toward reducing your expenses even more. For example, if your monthly housing costs are expensive, you can potentially downsize or consider moving to a city with a lower cost of living. Or if you have a high travel budget in retirement annually, cutting it in half can free up money for essential bills and other spending.
Shut out the noise
Everyone's situation is different and using blanket numbers of what you should have for retirement is not the best approach. You could be someone who didn't save a lot when you were younger but are making up for it now by contributing large sums to both retirement and non-retirement accounts. In this case, maybe you don't have a lot saved as of this moment, but you're on track to reach your goals within 10 years.
You could also be someone who has another guaranteed income source like a pension, which would make your retirement savings needs lower than those of someone who doesn't have one. Or maybe you have or are working toward having very low expenses and know you won't need a lot saved. This is why rules of thumb are suggestions rather than hard rules and should be taken with a grain of salt.
You may not have enough saved for your retirement, but that doesn't mean you can't get there eventually. Taking these steps now will get you on track and one step closer to reaching your goals.