According to the Federal Reserve's most recent data on the matter, a bunch of older Americans are underinvested for retirement. Specifically, the Fed's 2022 survey of U.S. consumers' finances says the average value of 45-to-55-year-olds' retirement accounts is only $313,000. That's still miles away from the seven-figure sum most people think they'll need to enjoy a comfortable retirement.
And that's an average skewed sharply higher by a small handful of very well-paid workers. The median retirement balance for this same crowd is even smaller at only $115,000, meaning half of these middle-aged people have saved even less for retirement.
Similarly alarming dynamics also apply to workers over the age of 55, even if they do have more saved up. (They've had more time to grow their retirement, after all.) But they're still short of the amount of money they'd like to have accumulated at this stage of their life.
If you're one of these older frustrated investors, don't panic! It's probably not too late to close the gap. Doing so will just require taking some significant actions, and soon. To this end, here are the top five you should do as soon and as often as you possibly can.
Image source: Getty Images.
1. Max out your match
If you're like nearly 2 out of every 3 American workers, you're employed by a company that offers access to a 401(k) retirement savings plan. And of those plans, mutual fund giant and retirement plan administrator Vanguard reports nearly all of these plans offer its participants an employer match of some sort. That just means if you put some of your own money into these accounts, your employer does the same on your behalf.
There are limits, of course. Vanguard says roughly two-thirds of employers only add an additional $0.50 for every $1.00 of contributions the worker makes to the cause. And then the eligibility for this match is usually capped at no more than 6% of the worker's total wages, if not less.
Still, it's free money. Rival fund company and retirement plan administrator Fidelity reports the average employer match in 2024 was a hefty $4,770. That's a nice chunk of change, even if you aren't fully vested in it for a few years. So, connect the dots and contribute at least enough to your employer's 401(k) plan to become eligible for the maximum-possible match.
2. Don't forget about your catch-up contributions
You can save more than this minimum in your retirement account, of course, even if some of that contribution isn't going to be matched. And if you're 50 or older, you can tuck away a lot more.
While workers under the age of 50 are only allowed to contribute a maximum of $23,500 into workplace retirement plans, those over the age of 50 can contribute up to $31,000 of their own wages into a 401(k) or similar plan. Then for a narrow group of people between the ages of 60 and 63, you can contribute $34,750 to such an account this year.
And that's just your workplace plan. Although the cap on contributions to ordinary, self-directed IRAs remains at $7,000 this year, this ceiling is $8,000 for anyone aged 50 or older.
3. Allocate your portfolio with purpose
Simply saving more money may not be enough on its own, however. Although you may still have some time to grow your retirement savings, the time to start planting these seeds was actually when you were much younger.
Still, you're not dead in the water. You can always get more out of what you've saved up thus far just by investing it more effectively. This starts with investing it in something -- anything -- in the first place, which apparently is a challenge for too many people. A study performed by Vanguard indicates that as of 2022 more than half of contributions made to retirement accounts over the course of the previous 12 months were still sitting in cash or on a cash-like holding.
The lingering echoes of the COVID-19 pandemic may have been the reason for part of this hesitation to put this money to work. This degree of wasted opportunity isn't especially unusual though. Too many savers are slow to do anything constructive with their money once they've put it into a retirement account. Even something as a simple as an index fund would be better than nothing (and arguably better than most options).
4. Make a realistic plan of progress
Do you have a plan or basic retirement framework for how you'll get from where you are now to where you want to be then? Most people don't. And that's a bit of a problem. Even if your plan isn't perfect, people with a specific goal generally end up taking specific steps meant to reach that goal. People without a clear objective, conversely, frequently end up taking no action at all.
In other words, something is better than nothing. A plan can be updated and improved as needed once you've started. Just getting started is the tough part.
5. Be honest about your spending (with a detailed budget)
But what if you don't have enough money left over at the end of the month to tuck any more of it away in a retirement account than you do already? It's a common frustration.
A survey performed by Bank of America last year indicates that half of all U.S. households feel like they're "living paycheck to paycheck," while even one-fifth of the seemingly affluent crowd earning more than $150,000 per year reports they're running out of money before the end of the month. And things have only become more expensive in the meantime.
Although salaries are improving somewhat now, they've still not grown quite enough to offset the rampant inflation we've seen since 2023. Nevertheless, the unfairness or complexity of a situation doesn't mean you shouldn't respond to it. You might have to make some difficult choices you weren't expecting to make in an effort to free up some savings.
This could mean cancelling cable television (as much as $150 per month, according to CordCutting.com, or $1,800 per year) and opting for free antenna TV, or downgrading your sports car to something a little more affordable. The chief challenge is just being honest with yourself about what qualifies as a "need" versus a mere "want."
Bonus: Sell something
Finally, as much as you might not want to do something this drastic, given that your retirement is on the line, it might be time to sell something big, like a project car, a piece of unworn high-end jewelry, or a vacation home you rarely get to visit.
And the upside of such a decision isn't just converting an asset into cash that can then be invested in something that gains in value over time. You may be erasing some serious ongoing carrying costs too. For example, renting a boat slip can easily cost a few hundred bucks per month, while the annual premium on jewelry insurance is on the order of 1% to 2% of its value.
You may well end up not missing what you're sure you would, particularly when the bills simply for continuing to own it stop coming.
