If you’re getting close to retirement and are a little slim on the retirement funds, do not try to compensate by ratcheting up your risk in an attempt to catch an up-swing as a means of catching up. It is possible to catch up on your retirement savings. First, don’t worry, you are hardly alone if you’re a little behind in your latter years. Second, the emphasis of your retirement plan should be on saving more. By creating a larger balance, you allow more reasonable rates of return, coupled with reasonable risk, to take over and get you where you need to be. Risk has a funny way of burning you when you least expect or can afford it, so avoid taking too much risk so close to retirement.
There are several ways you can go about saving more. If you cut your expenses you will have more money available to save. You can use a budget calculator to help determine where you can cut expenses. Once you have cut your expenses make sure you put all of the extra money into your retirement savings.
Now, if you’re a few years away from retirement, one alternative is to work a few more years so that your retirement savings can grow to where they need to be. A few more years of work means a few more contributions to your retirement savings, a few more years of the balance growing because of your investment choices, and a few more years for you to figure out what it is you want to do with your new free time.
Lastly, after you take advantage of the catch-up provisions in accounts like a Roth IRA, you might want to push the envelope on your investments and maybe put a little more in stocks than the general consensus. Don’t pick a hot new biotech to plow all your money into, that’s just straight stupid, you can’t afford to lose that money; but you can put a couple more percent into that index fund and maybe catch up that way. Don’t go crazy though.