There's a reason we're told to save for retirement consistently throughout our careers. Social Security will only replace about 40% of the average worker's pre-retirement wages, and most seniors need more like 70% to 80% of their former earnings to live a comfortable lifestyle. That extra money needs to come from somewhere, and in the absence of a pension or inheritance, your best bet is probably your 401(k) or IRA.

If you're under 50 years of age, your annual 401(k) contributions are limited to $19,500. Now that's pretty generous in its own right. But if you're 50 or older, you're also entitled to a $6,500 annual catch-up contribution, and that gives you a real opportunity to grow some serious wealth for your senior years.

Smiling older man and woman at table

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What can catch-up contributions do for you?

If you're already maxing out a 401(k) by the time you reach 50, you may not be all that inclined to take advantage of catch-up contributions. But if you have the means to put in that money, it could really work wonders for your savings balance.

Imagine you're set to retire in 15 years and you put $19,500 into your 401(k) on an annual basis. Let's also assume that you invest your 401(k) in a manner that delivers an average annual 7% return, which is a few percentages points below the stock market's average. After those 15 years, you'll have added $490,700 to your retirement plan.

But watch what happens if you make a $6,500 catch-up contribution on that top of that $19,500. Assuming that same 15-year period and return and investment, you'll be looking at $653,000. And to be clear, that's on top of whatever money you already had in your retirement plan.

Table showing 401(k) balance with catch-up contribution vs. no catch-up

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Making room for catch-ups

If you've been maxing out your 401(k), you're already making sacrifices. But a few strategic moves on your part could help you eke out that extra $6,500 a year.

First, you might consider taking on a side job you enjoy doing. That additional income can then go directly into your retirement plan. Another option is to cut back on vacations, or take more modest ones. Once you retire, it may easier and less expensive to travel since you'll have the option to go off when you please; you won't have to worry about busy periods at work or limited paid time off. Finally, you might make everyday changes that really add up, like dining out less frequently or cutting out extras you don't use that often, like the gym membership you pay full price for despite only using it once a month.

While IRA savers aged 50 and over are able to make a $1,000 catch-up contribution each year to their retirement plans, if you have a 401(k), your catch-up total is far more generous, and so it pays to put it to good use. By parting with that extra $6,500 a year, you'll set yourself up for a really nice retirement, so the sacrifices you make to contribute that money will be well worth it.