Millions of people lost their jobs during the pandemic, which likely meant a pause in retirement savings. If you fall into this camp – or if you’ve been unemployed for a while due to other circumstances – you may be wondering how to make up for lost time now. After all, because money in investment accounts is compounded, the amount of money lost is actually more than what your contribution would have been.
Learn: 27 Ugly Truths About Retirement
Find: 25 things to sell when you’re ready to retire
Here’s what finance professionals say to do to catch up.
Determine how much more you need to save
Before you start catching up on your savings, you need to know exactly where you are and how that compares to where you want to be.
“Start by reassessing your retirement goals and expectations to discern exactly how far behind you are,” said Rick Durbin, CFP, financial advisor and managing member of Silver Pine Wealth Management. “From there, adjust accordingly.”
Look for ways to make more money
The more money you earn, the more you can invest in retirement savings.
“Talk to your boss about increasing your income by working overtime or working on a special project that could result in a raise or promotion,” said David Totah, CFP, senior wealth advisor at Exencial Wealth Advisors.
POLL: Do you think states should suspend their gas taxes?
He also recommends learning new skills through additional training or certifications that could increase your value on the job.
In addition to finding ways to make more money from your main job, look for side gigs or part-time jobs.
“A part-time side job can really contribute to additional retirement savings,” Totah said. “Find out how much you need to catch up and set a goal to keep working on the side until you’ve caught up on your retirement savings. If you love the job, keep it for the long haul!
Look for ways to spend less
Free up more money for retirement savings by looking for ways to cut expenses, Totah recommended.
“Eat less and cook more at home, look at cable and streaming costs, and cut out things you don’t use,” he said. “Review auto and home insurance policies every couple of years to make sure you’re not paying too much for coverage, but make sure you maintain adequate coverage.” Look at your monthly budget and try to cut expenses by at least 10% or more, if possible. Most of us could cut our budget by 10% without even realizing it.
If you currently live alone, finding a roommate can be an effective way to reduce your living expenses.
“A roommate can help you pay the bills and save extra money in your retirement plans,” Totah said.
Maximize your retirement savings
To make up for lost time, be sure to save as much as possible for your retirement now.
“Maximize 401(k) savings,” Totah said. “If possible, add to a regular Roth or IRA, or add to an after-tax savings account.”
In 2022, the contribution limit for 401(k) plans is $20,500, and it’s $6,000 for traditional and Roth IRAs.
Meet a financial advisor
If you don’t know how far behind you are — and what the best ways to catch up are — it’s worth meeting with a professional who can offer expert advice.
“To make up for lost time, some workers may have to postpone their retirement date. The other alternatives are to invest more principle or to invest so as to increase the returns generated. There are combinations of these three parts that could make sense to various investors,” said Roger Gaddis, CPA, CFP, senior wealth advisor at Gaddis & Gaddis. “An experienced Certified Financial Planner could be instrumental in analyzing parties, investor goals and personal risk tolerance to provide advice on the best course to take.”
More from GOBankingRates