6 Ways People Fall Behind on Retirement Savings
Written by
Adam Palasciano
Edited by
Nicholas Morine
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Retirement should be enjoyable, leisurely, and relaxing. It certainly shouldn’t be a time to worry about making ends meet and staying afloat financially. Ideally, you saved and invested your whole life and now your money works for you.
However, there are a number of ways that you can fall behind on your retirement savings, which can have negative implications on your long-term financial stability.
Here are six ways that people fall behind on retirement savings, according to GOBankingRates and Kiplinger.
1. Neglecting Employer’s 401(k) Match
If your employer offers a 401(k) match, it’s foolish not to take it. For example, if you’re offered a 4% dollar-for-dollar match on your 401(k) contributions and you contribute 4% of your own earnings, you’ll be banking an 8% contribution.
An employer match is essentially free money, so don’t leave it on the table.
2. Not Maxing Out Annual 401(k) Contributions
It’s crucial to contribute as much as possible to your 401(k) throughout your working career. For 2024, workers can contribute a maximum of $23,000 to their 401(k). For a traditional or Roth IRA, the maximum limit is $7,000 for those under age 50, and $8,000 for those older.
As a general rule of thumb, it’s best to contribute at least 15% of your gross income to retirement to ensure a secure financial future.
3. Not Making 401(k) Catch Up Contributions After Age 50
In addition to the annual 401(k) and IRA contribution limits, those age 50 or older are allowed to make additional catch-up contributions to their retirement accounts. This is a great way to pad your retirement savings during the last decade of your working career.
For 2024, you can contribute an extra $7,500 in addition to the $23,000 maximum 401(k) contribution, for a total of $30,500. For a traditional or Roth IRA, you can contribute an additional $1,000 beyond the standard $7,000 limit, for a total contribution of $8,000.
4. Not Contributing to a Health Savings Account
A health savings account (HSA) is a tax-advantaged account that allows you to pay for medical expenses with pretax income. It’s a great way to save for medical expenses in advance of retirement.
The best part is that your funds grow tax-free and withdrawals are also tax-free if the funds are used to cover eligible medical expenses. For 2024, you can contribute up to $4,150 if you have an individual health insurance plan — and up to $8,300 if you have a family plan.
If you’re 55 or older, you can take advantage of an additional $1,000 catch up contribution as well. HSA funds can be used to cover medical expenses in retirement that Medicare does not.
5. Taking on Too Much Debt
Debt eats a hole in your wallet and can prevent you from saving or investing enough money. Moving into a bigger house, getting a brand new car every 3 years, buying designer clothes, and taking lavish vacations can all land you in debt if you’re not careful (and don’t actually have the money).
The worst thing you can do is rely on credit cards to fund a lifestyle you can’t truly afford.
6. Spending Too Much on Unnecessary Things
You should always focus on your needs before your wants. That’s housing costs, utilities, groceries, and healthcare expenses. Spending too much on your wants can take away from saving and investing, or worse, land you in debt.
The little things add up: unused streaming services, your morning cup of coffee from the corner cafe, and dining out too often. Consider evaluating your monthly expenses to see what you can cut out. Your future retired self will thank you.
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