How to Close the Gap in Your Retirement Savings

You check your 401(k) balance and feel that familiar knot in your stomach. The number staring back at you seems impossibly small compared to what you know you’ll need for the future. Sound familiar?

Whether you're growing your career, raising a family or planning for your next chapter, it’s easy to feel like you're behind on retirement savings. You're not alone. In fact, 57% of Americans feel the same way.

But here’s the good news: being behind doesn’t mean you’re out of the game. The gap between where you are and where you need to be isn’t a verdict, it’s a roadmap. With appropriate strategies and some focused effort, you can seek to build retirement savings that can help you feel more confident.

Let’s explore proven tactics to accelerate your savings and reclaim control of your financial future.

What is a Retirement Savings Gap?

A retirement savings gap is the difference between the amount of money you've saved for retirement and the amount you'll realistically need to cover your expected expenses once you stop working. If you're mid-career and feel like your savings aren't quite where they should be, you're likely experiencing this gap.

Here are a few circumstances that can lead to retirement savings gaps:

• Late Start: Beginning retirement savings in your 30s or 40s instead of your 20s, missing out on decades of compound growth that could have doubled or tripled your nest egg.
• Career Breaks: Taking time off to raise children, caring for aging parents or pursuing education, which interrupts both earning potential and consistent contribution habits.
• Underestimating Needs: Assuming you'll need only 60-70% of your current income in retirement, when healthcare costs, inflation and longer lifespans often require 80-90% or more.
• Inconsistent Contributions: Starting and stopping retirement contributions based on financial pressures, or failing to increase contributions as income grows, leaving money on the table year after year.
• Early Withdrawals: Unexpected financial hardships, such as medical crises, home repairs or job loss, cause some people to withdraw from their retirement accounts before age 59½. Beyond the immediate 10% penalty and income taxes (IRS rules for early withdrawals), these withdrawals critically stunt the power of compound interest.

How Do I Know If I Have a Retirement Savings Gap?

The easiest way to determine if your savings are on track is to use a retirement calculator.* This tool can help you estimate what you'll need and show you where you currently stand. Give our Retirement Planning Calculator a try!

How Can I Catch Up on Retirement Savings Fast?

Need to pick up the pace and increase retirement savings quickly? Start by taking full advantage of the tools already available to you, especially employer-sponsored retirement plans and powerful catch-up contributions.

Here's where to begin:

• Maximize Your Employer Match: This is often the quickest way to boost your savings. If your employer offers a match on your 401(k) or 403(b) contributions, contribute at least enough to get the full match. It's essentially free money!
• Increase Contributions With Each Raise: Make it a habit to increase your contribution percentage every time you receive a salary increase. You likely won't even miss the extra amount from your paycheck.
• Turn on Auto-Increase): Many retirement plans offer an auto-increase (auto-escalation) feature. Set your account to automatically increase your contribution by 1% each year (or a percentage you're comfortable with) until you reach your savings goal or your plan's maximum allowed contribution, such as 15%. Your savings will grow without you having to think about it.

What Are Catch-Up Contributions and How Do They Work?

Once you're 50 or older, you have an incredible advantage: retirement catch-up contributions. These are extra contributions you’re allowed to put into your retirement accounts above the standard annual limits, specifically designed to help you close your savings gap.

For 2025, annual catch-up contribution limits are:

• 401(k)/403(b): Up to an extra $7,500
• IRA: Up to an extra $1,000

Imagine adding an extra $500 per month for 15 years, earning a 6% return. This could add over $150,000 to your nest egg! It's a powerful way to accelerate your progress.

How Can I Increase Retirement Contributions Each Month?

Beyond employer plans, one of the fastest ways to increase retirement savings is to raise your regular monthly contributions. Even a 1-2% increase can make a significant difference over time, especially if you automate it.

Try these quick wins to free up funds:

• Annual Increase: Set up a 1% annual increase in your 401(k) or IRA contributions.
• Raises and Bonuses: Redirect part of any raise or bonus directly into savings before you even see it.
• Reallocate Spending: Use a budgeting app to identify "spending leaks" where you can reallocate money.

Leverage the Power of Compounding Interest

Imagine your money working harder for you, earning not just on your initial investment, but also on the interest it's already accumulated. This is the power of compounding interest. Every dollar you invest, especially early on, isn't simply a dollar; it's a seed with the potential to grow, into many dollars. It's why even small, consistent contributions today can lead to exponentially larger results over time.

How to harness compounding interest:

• Start Early: The more time your money has to compound, the more dramatic the results. Even if it's just a small amount, starting in your 20s rather than your 30s can mean hundreds of thousands of dollars more by retirement.
• Be Consistent: Regular contributions, even if modest, keep the compounding engine running. Automate your savings to ensure you're always adding to your principal.
• Increase Contributions Over Time: As your income grows, try to increase the percentage you save. This accelerates the compounding effect significantly.

What Types of Investments Should I Consider to Help Catch Up on Retirement Savings?

When it comes to retirement savings strategies, diversifying your investments is key. This helps you reduce risk by spreading out investments and potentially make your money work harder for you as you catch up on savings.

Consider these options:

• Target-Date Funds: These professionally managed funds automatically adjust their asset allocation (stocks, bonds, etc.) as you get closer to your target retirement date. They're a great hands-off option. The principal value of a target fund is not guaranteed at any time, including at the target date.
• Roth IRA or 401(k): If you expect to be in a higher tax bracket in retirement, a Roth account can offer tax-free growth potential and withdrawals in retirement, provided certain conditions are met.
• Brokerage Accounts: For those who have maxed out their tax-advantaged accounts or want more flexibility, a taxable brokerage account offers another avenue for potential investment growth.
• Diversification: Make sure your money is spread across different asset types such as stocks, bonds and real estate to reduce risk and pursue potential returns.

What’s the Best Investment Strategy to Close a Retirement Gap?

The "best" strategy is highly individual. It depends on your age, risk tolerance and specific objectives. Not sure what mix is right for you? Our financial consultants can help you craft a personalized investment strategy tailored to your circumstances and goals.

How Can I Adjust My Budget to Close My Retirement Savings Gap?

Closing your savings gap doesn't always mean drastic changes. Small lifestyle tweaks can create significant extra room in your budget for retirement. Focus on recurring costs that add up over time.

Consider these tips to help you free up $100-$300+ per month:

• Manage Subscriptions: Cancel unused subscriptions or streaming services.
• Reevaluate Housing Costs: Could refinancing your mortgage, downsizing or finding a more affordable living situation free up significant funds?
• Skip Luxuries: Cut back on dining out, luxury purchases or expensive hobbies.
• Compare Insurance Options: Shop insurance rates annually for auto, home and health policies.
• Make the Most of Credit Card Rewards: Use cash back or rewards credit cards strategically to earn back a percentage of your spending. Just be sure to pay them off in full each month to avoid paying interest.

What Expenses Should I Cut to Save More for Retirement?

Focus on recurring expenses that you can reduce or eliminate without significantly impacting your quality of life. Even small, consistent cuts can free up valuable funds for retirement savings.

What Are Good Ways to Earn Extra Income for Retirement?

A side gig or freelance work can be an excellent way to boost your income. You can funnel those earnings directly into your retirement savings, without disrupting your primary job.

Ideas to explore:

• Freelancing: Pick up temporary work in your current or a related industry.
• Tutoring: Consider tutoring or coaching in a subject you're knowledgeable about.
• Online Retail: Sell products or services online (e.g., crafts, consulting).
• Rideshare and Delivery: Incorporate rideshare or delivery driving for flexible income.

Tip: Funnel side hustle income directly into your IRA, Roth or 401(k). Even $200/month adds up to tens of thousands over time.

When Should I Talk to a Financial Consultant About Retirement?

If you haven’t reviewed your retirement plan in the past year, now’s the time. Meeting with a Landmark Investment Center financial consultant can provide key insights and help you:

• Review Your Portfolio: Review your current assets and overall financial picture.
• Maximize Employer Benefits: Get the most out of your employer-sponsored plan benefits.
• Catch Up: Explore advanced catch-up strategies tailored to your situation.
• Craft a Strategy: Create a personalized retirement roadmap to guide your decisions.

Want a free second opinion on your retirement savings? Schedule a financial checkup today with a Landmark financial consultant.

Recap: What Are Some Ways to Close a Retirement Gap?

• Get the Full Match: Max out employer match contributions – it’s free money!
• Make Catch-Up Contributions: Utilize catch-up contributions if you’re age 50 or older.
• Automate Increases: Automate 1-2% contribution increases annually.
• Reduce Expense: Cut monthly expenses and redirect those savings into retirement.
• Diversify Investments: Diversify your investments based on your timeline and risk tolerance.
• Consider Side Gigs: Use side income to significantly pad your retirement funds.
• Seek Professional Guidance: Get personalized help from an experienced financial consultant.

Is It Too Late to Start Saving for Retirement? 

No, it’s never too late! While starting early offers advantages, the key is to start now, make consistent progress and adjust your plan as life changes. Whether you're catching up or just getting started, you have more control over your financial future than you might think.

If you need support crafting a custom plan to close the gaps in your retirement savings, we’re here to help.

Ready to Build a Personalized Retirement Plan?

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* Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment, tax, or legal advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets. (67-LPL)

Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company. (147-LPL)

The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Indexes are unmanaged and cannot be invested in directly. (102-LPL)

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. (26-LPL)

This information has been provided for educational purposes only. Each individual situation will vary. For more information and answers to many questions about Social Security benefits, go to ssa.gov.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This material was prepared by LPL Marketing Solutions and Landmark Investment Center.

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