How to Close Your Retirement Savings Gap

It's wise to periodically review your retirement savings to make sure you're on track. But this step becomes critical during your final years in the workforce. At that stage, you still have time to make course corrections if you're headed for a savings gap, meaning your nest egg won't be enough to generate the income you'll need in retirement.

Follow these steps to identify a gap and fill it.

Calculate your savings needs. Use our Retirement Security Builder calculator to determine whether your savings and other sources of income will allow you to maintain your lifestyle in retirement. If you face a shortfall, the calculator will show how making some adjustments can improve your retirement forecast. For example, you could plan to:

• Boost your savings rate.
• Work a couple of years longer to provide more income. Fewer years of retirement means fewer years to finance.
• Examine ways to reduce spending in retirement — like by downsizing housing or finding a part-time job to help delay Social Security in order to accrue a larger benefit when that time does come.

Capitalize on catch-up contributions. One way to close a savings gap is to maximize your contributions to retirement accounts. Already doing that? Then the next step is to take advantage of catch-up contributions to tax-sheltered accounts.

For example, starting in the year you turn 50, you can contribute an extra $1,000 annually, for a total of $7,000 in 2021, to a traditional IRA or a Roth IRA. Plus, savers who are 50 and older can put aside an additional $6,500 in a 401, 403(b), or 457 plan, for a total of $26,000 in 2021.

What's more, workers with a 457 or 403(b) plan may have additional ways to boost savings if their plans permit.

Some 457 plans let you make up for years in which you weren't making the maximum contribution. Under this "pre-retirement" catch-up, you can salt away as much as twice the annual limit during the three years before your normal retirement age. For 2021, the maximum pre-retirement catch-up contribution is $39,000. (Note: You can't use this option and the 50+ catch-up contribution at the same time.)

In addition, workers whose 403(b) plan contributions averaged less than $5,000 a year may be able to sock away an extra $3,000 annually ($15,000 total) regardless of age, provided they've been with their employer for at least 15 years. And they can combine this option along with the catch-up provision for those age 50 and older. Learn more about this year's contribution limits.

Learn more about closing the savings gap. Connect virtually with your ICMA-RC Retirement Plans Specialist.