What should you do if you are behind on retirement savings?

Today we are going to talk about what to do if you're now in your 50s, have started saving for retirement, but feel like you're behind financially.

First, it's important to know exactly where you stand. You do that by calculating your net worth. You should know what this number is and how it is changing over time.

Next, you need to estimate your retirement lifestyle cost. How much do you anticipate spending during your retirement? The best way to project that is to know what you're spending. Now this will take some budgeting to understand what all those monthly expenditures are, and which of those might go away when you retire. Maybe your house is paid off, so your mortgage goes away. Which expenses might get bigger after you retire? Maybe health care costs, travel expenses, and more dining out.

Finally, you need to project your retirement income streams. Where is your money going to be coming from? Do you have a pension? When will you take Social Security? How much do you have in investment accounts? Do you have other sources of passive income, like from a rental property, for example? So, one way to roughly estimate how much money that you need in a retirement account to fund your retirement is the 4% rule. This says that you should have enough invested that you can pay all your expenses if you withdraw 4% per year. Another way to look at that is to multiply your annual retirement expenses by 25 that will get you to a rough number.

If you run all the numbers and you discover that you are short, what can you do? Well, there are multiple options. Option number one, use retirement savings accelerators. Take advantage of the catch-up contribution rules for defined contribution accounts. Defined contribution accounts are the standard retirement accounts that you, as an employee, have the option to contribute to every year. There are several types of these, and each has a little bit different nuance on how you can add more savings after you hit age 50. For 401(k) accounts, the typical allowable employee contribution each year is $23,500 for the 2025 tax year. Every year, these numbers usually increase. If you're also the employer, like is the case with many physicians, you can contribute up to a total of $70,000 if your salary justifies it. Now after age 50, you're allowed to contribute an additional $7,500 per year on top of those limits. So that's a large amount of tax advantaged savings.

For 403(b) accounts, they're a little bit different. They also allow the $7,500 catch up, but they have a unique rule for anyone that has been an employee for 15 years or more with the same employer. You can make an additional catch up contribution of up to $3,000 per year with a $15,000 lifetime cap. That is in addition to the $7,500 for a total of $10,500 in some years.

What about 457(b)'s? If you have one of these types of accounts, you have two different catch-up options, but you can only use one in a given year. Option number one is the additional $7,500 just like the 401(k). Option two is a special pre-retirement catch up. This is available during the final three years before the plan's normal retirement age, so typically 65. In those years, the participant can contribute up to twice the annual deferral limit, so $47,000, if they under-contributed in prior years. This is available only in governmental 457 plans, not private ones.

For both traditional and Roth IRAs, the base limit is $7,000 per year, but you can add an additional $1,000 after age 50. Defined benefit plans are basically pensions and cash balance plans, so if you own your practice or work for a company that has one of these, a defined benefit plan is a great way for late savers with high income to dump a lot of tax-sheltered assets into your retirement buckets. We're talking on the order of several hundred thousand dollars if your age and income justifies it.

What are some of your other options? Well, you can always delay your retirement, though, perhaps this is not ideal. Remember, each extra year that you work equals more savings and fewer years that you need to fund. How about accessing the cash that's tied up in one of your largest assets, your home? If you're now an empty nester, you may find that you are living in a much larger home than you need or want. Downsizing is a great way to free up capital and reduce ongoing expenses.

You may need to just scale down your lifestyle for a while to allow for more aggressive savings and investing for your retirement years. This may involve delaying large purchases or scaling back on vacations. Maybe it's just a matter of eliminating further lifestyle creep, as this may have been what got you into trouble in the first place. But if you want a reasonable lifestyle in your retirement, you may need to take a bit of a hit in your lifestyle now. Focus on your needs, scale down your wants.

Finally, consider work flexibility as an option. No one says that you have to retire all at once, even if you have enough money to do so. You can phase into retirement with part time work or another source of employment outside of your main gig, like a locums contract, for example. This lets you keep earning while reducing burnout, and helps ensure that you're ready to walk away from a mental standpoint, as well.

If you find yourself in your 50s and behind on your retirement savings, don't panic. There are still things you can do, but at this stage, intentionality is everything. You have to solidify a catch-up plan and stick to it. Every decision—spending, saving and investing—needs to be aligned with catching up. I would recommend working with a trusted financial advisor who can help you.

Bryan Jepson, MD, CFP, MSF, ChSNC, is a financial advisor with Targeted Wealth Solutions LLC.