Retirement planning is one of the most important financial goals, yet many people find that their retirement savings or plan isn’t enough to meet their future needs. Whether due to changes in income, unforeseen life events, or simply a plan that wasn't properly adjusted over time, a retirement plan falling short of your needs can be concerning. The good news is that there are multiple steps you can take to address the gap and get your retirement plan back on track.
Common Reasons a Retirement Plan May Fall Short
There are several reasons why a retirement plan might not meet your future needs. Some of these are within your control, while others may be influenced by external factors. Understanding why your plan is underperforming is the first step toward resolving the issue.
1. Underestimating Retirement Expenses
A common reason retirement plans fall short is that many people underestimate how much money they will need to live comfortably in retirement. Your expenses may be higher than anticipated due to increased healthcare costs, inflation, or lifestyle changes.
Many individuals also assume that expenses will decrease during retirement (e.g., fewer work-related costs), but often, spending on healthcare, travel, or hobbies increases as people enjoy more free time.
2. Insufficient Contributions
If you haven’t been contributing enough to your retirement plan, it may not grow to the level you need. Many people start saving later than they should or contribute less than the recommended percentage of their income. Also, contributing only the minimum amount to employer-sponsored retirement accounts (e.g., a 401(k)) without taking full advantage of employer matching can result in an underfunded retirement.
3. Low Investment Returns
Another reason your retirement plan might fall short is that the investments within your retirement account haven’t performed as well as expected. Stock market downturns, poor asset allocation, or high fees can all contribute to lower-than-expected returns.
Additionally, if your portfolio is too conservative (e.g., relying heavily on bonds or savings accounts), it may not generate enough growth to meet your retirement needs.
4. Changes in Life Circumstances
Life events such as job loss, divorce, unexpected medical expenses, or caring for family members can impact your ability to save adequately for retirement. If you’ve had to dip into retirement savings for emergencies or if your career path has been disrupted, your retirement plan may not be as robust as it should be.
5. Inflation and Rising Costs
Over time, inflation erodes the purchasing power of your savings. What seems like a comfortable retirement fund today may not stretch as far in the future due to rising costs for goods, services, and healthcare. If your retirement plan isn’t growing fast enough to keep up with inflation, it may not meet your needs.
Steps to Take When Your Retirement Plan Is Falling Short
If you find that your retirement plan is not on track, don’t panic—there are steps you can take to improve the situation. The key is to take proactive action and adjust your strategy.
1. Reevaluate Your Retirement Goals and Expenses
The first step is to revisit your retirement goals. Consider how much money you’ll need each year in retirement, taking into account your desired lifestyle, healthcare needs, and other costs.
Key Actions to Take:
Track Your Future Expenses: Estimate how much you’ll need for housing, transportation, food, healthcare, and entertainment. Don’t forget to account for inflation.
Determine Your Desired Lifestyle: Do you plan on traveling often, or will you live more modestly? Your lifestyle choices will significantly impact your retirement savings needs.
Calculate Your Target Retirement Savings: Once you have a clearer picture of your future expenses, use retirement calculators to determine how much you’ll need to save to maintain your desired lifestyle.
Reevaluating your retirement goals will give you a clearer sense of what needs to be done to get your plan back on track.
Increase Your Contributions
One of the most effective ways to catch up on your retirement savings is to increase your contributions. The earlier you start contributing more, the more you can benefit from the power of compound interest.
Key Actions to Take:
Maximize Employer Contributions: If you’re participating in an employer-sponsored plan like a 401(k), make sure you’re contributing enough to take full advantage of any employer match. This is essentially free money and a key component of building your retirement savings.
Increase Your Savings Rate: Aim to increase your savings rate gradually. If you can, try to contribute at least 15% of your pre-tax income to your retirement plan. If that’s not possible right away, start by increasing your contributions by 1-2% per year.
Open Additional Accounts: If you’ve already maxed out contributions to your employer-sponsored plan, consider contributing to an IRA (Traditional or Roth) or opening a taxable investment account to continue saving.
The more you contribute, the quicker you can build your retirement savings.
Review and Adjust Your Investment Strategy
Low returns on your retirement investments could be another reason why your plan is falling short. Regularly reviewing your portfolio and making adjustments can help ensure that it’s growing at an appropriate rate.
Key Actions to Take:
Diversify Your Portfolio: If your retirement plan is heavily concentrated in one asset class (e.g., bonds or cash), consider rebalancing to include a mix of stocks, bonds, and other assets. A diversified portfolio is better positioned to grow over time and withstand market downturns.
Consider Risk and Time Horizon: Your investment strategy should be aligned with your risk tolerance and retirement time horizon. If you’re decades away from retirement, you can afford to take on more risk in your portfolio. As you get closer to retirement, consider shifting to more conservative investments to protect your savings from market volatility.
Minimize Fees: High fees can erode the growth of your retirement savings. Consider switching to low-cost index funds or ETFs that offer diversification at a lower cost.
Reviewing your portfolio regularly and adjusting it as needed can help ensure that your investments are performing as expected.
Delay Retirement or Adjust Retirement Age
If your retirement savings are falling short, one option is to delay your retirement. Working for a few more years allows you to save more, and it can also help reduce the amount you need to save by decreasing the number of years you'll be drawing from your retirement funds.
Key Actions to Take:
Postpone Retirement: If possible, consider delaying your retirement age. By working longer, you can contribute more to your retirement accounts and reduce the length of time you’ll need to rely on your savings.
Consider Part-Time Work in Retirement: If you’re concerned about your retirement funds, consider working part-time in retirement. This can help supplement your income and give you more flexibility with your savings.
Delaying retirement can provide you with more time to build your nest egg, allowing you to retire with greater financial security.
Conclusion
A retirement plan that’s falling short of your needs doesn’t mean all hope is lost. By taking proactive steps—such as reevaluating your retirement goals, increasing contributions, adjusting your investment strategy, and seeking professional advice—you can get back on track and build a more secure financial future. While it may take time to catch up, a focused and disciplined approach will help you close the gap and achieve the retirement lifestyle you desire. It’s never too late to start making adjustments to improve your retirement plan.