How to Invest for Retirement When You Don’t Have Much Saved

Saving enough for retirement can be a major financial challenge. Many people reach their 40s, 50s, or 60s without having put away substantial retirement funds. While the ideal is to start saving and investing for retirement as early as possible, it is never too late to develop a reasonable retirement investment strategy. Here are some tips for investing for retirement when you don’t have much saved:

Take Advantage of Tax-Advantaged Retirement Accounts

Contributing to tax-advantaged retirement accounts like 401(k)s and IRAs should be your first investment priority. The tax benefits will help your savings grow faster. Contribute at least enough to get any available matching employer contributions. Raise your contributions 1-2% annually to build retirement funds over time.

Investigate Catch-Up Contributions

Once you turn 50, take advantage of 401(k) and IRA catch-up contributions which allow you to contribute an extra $6,500 and $1,000 respectively beyond the normal limits. Use this provision to accelerate your retirement savings.

Consider shifting investments to more aggressive assets

The less time you have until retirement, the more aggressive your investment asset allocation may need to be. Consider shifting some fixed-income investments to higher return assets like stocks to better position your portfolio for growth. Have an appropriate high-risk tolerance that aligns with your time horizon.

Invest in equities cautiously

Having significant equity exposure can provide portfolio growth. However, focus on investing in high quality, dividend paying stocks. Have realistic return expectations. Diversify your stock holdings to mitigate risk. Avoid speculative risky stocks that can undermine your retirement strategy.

Look into delaying your Social Security benefits

For each year past your full retirement age that you delay taking Social Security payments, your benefit amount increases about 8% up to age 70. This can be an impactful strategy to maximize your eventual monthly Social Security income.

Set a goal for retirement savings

Determine a feasible retirement savings target based on your current savings, anticipated Social Security benefits, and post-retirement income needs. Establish a goal such as accumulating 12-15 times your ending salary. This gives you an amount to work towards.

Consider downsizing your home

Trading down to a smaller, less expensive home can free up significant equity that can bolster your retirement funds. With your children grown up and less space needed, a smaller home may better suit your needs.

Look for passive income sources