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  • Writer's pictureDavid J. Perrotto

How to Make Up For a Retirement Savings Shortfall

Let's face it, a majority of Americans are massively under prepared for their non-working years, aka retirement. According to research, the average retirement savings for families aged 56 to 61,

is $163,577. This is far less than the $1 million that many experts recommend as a target for retirement savings. While Social Security can supplement existing retirement savings, the average monthly retirement benefit of $1,329 most likely will not fill the gap. How can we figure out how to close the gap so that we can actually enjoy retirement?

It may seem hopeless for the vast group of people who have limited funds in their retirement savings account but all is not squandered. There are a few main ways to ensure a better outcome in your non-working years if you’re approaching retirement with a savings shortfall.

First one is pretty obvious, save more money. Pretty simple right? Nearing retirement with little in savings could cause many people to take on more risk, with a very low time horizon. Let's be honest, hoping some risky bet to push your savings up so you can get ahead in retirement is slim to none. What most likely will happen if you lose even more money, and put yourself in a deeper hole. A better idea is to just put more money in savings. It won't compound like your retirement did in your 30's but it will help start to close the retirement gap. If you are saving 10% of your income, start saving 20%. Over shorter time frames like this, a doubling of your savings rate leads to a far better outcome than a doubling of your investment returns. Remember, you have control over how much you save, but no control over the performance of the markets. It may be tough to save 20% of your income but the good news is, in your 50's with your kids out of college, your home almost paid off, and your peak earnings years, you should be able to kick it into high gear.

Another way to get through a shortfall is to reduce your expectations. You can downsize your home in retirement, start cutting expenses and build a budget that matches your retirement savings. This will be tough because you are forced to cut back on many things you have become to expect. With most in retirement spending 40,000 a year, and the average social security payment is roughly 1300, there is an ocean between those two numbers. If you have to live off a low fixed income, it doesn't hurt to start bringing down your expenses now, so that you can achieve your lowered expectations.

Lastly, you can always work longer. With many people living longer, the old idea of retiring in your 60s and moving somewhere sunny in the south may be a thing of history. It isn't a bad idea to work longer to stay sharp, keep yourself busy, and to bring in more income, even if it's on a part-time basis. If your savings shortfall is wide, you may be forced to work longer because they don’t have the financial support to stop working. Researchers have found there can be huge financial benefits from extending your time in the workforce. Working longer helps in three areas of your retirement shortfall. It allows you to push back your social security payments, which allows you to get more money in your check when you do take it, it allows you to put more money in your retirement account, which will allow you to pull out more cash when you retire, and lastly, it allows you to not take distributions out earlier than needed.

There is no correct answer for a retirement shortfall, but I do no the answer is never to just hope it works out, and take no action. The soundest strategy includes some combination of the three approaches described here. It’s never too late to recover your retirement if you got a late start to saving, but each choice requires sacrifice now to make things easier later.

If you do have a retirement shortfall, and you need help figuring out how to close the gap do not hesitate to give me a call at (718) 551 - 7131 or shoot me an email at

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