Boost Your Retirement Savings Fast With This 6-Step Plan


What do you do when you're in your last decade of your working life, but you don't have enough money saved for retirement? Sausalito, CA financial planner Bob Goldman shared his top tips for maximizing savings during the home stretch. (See also: Essential Truths for a Successful Retirement)

Goldman created this step-by-step list for Carol Dorsett, who relocated to the San Francisco Bay Area after being laid off as photo editor at a Midwestern newspaper. Carol moved in with her sister and began training in computer skills and started job hunting.

At 56, Dorsett hopes to work for another 11 or 12 years before beginning a financially secure retirement. She has a small pension and a 401(k) account, but she had to take an early withdrawal from her 401(k) to pay health insurance premiums, for which she paid a penalty and taxes.

"My concern is, once I get a full time job, how do I start really focusing on retirement?" Dorsett said.

Goldman had her fill out a detailed questionnaire, and then offered a basic six-step plan for how to make the most of her last decade of work. While this is specific to Carol Dorsett's situation, the strategies apply to many who are nearing retirement. (See also: Retirement Planning If you're Under 30)

1. Don't Touch Your 401(k)

If you withdraw money before the age of 59 ½, like Dorsett did, you have to pay income tax on the amount you take out, as well as a 10% early withdrawal penalty.

2. Maximize Retirement Contributions

Goldman advised Dorsett to contribute the maximum to her employer's 401(k) plan, and then open an IRA to save even more. There is an $11,500–$17,500 annual limit on 401(k) contributions, depending on the type of plan. But the IRS allows workers over age 50 to make additional catch-up contributions of $2,500–$5,500, again depending on the type of plan.

People over 50 can deposit up to $6,500 into a traditional or Roth IRA each year, which is $1,000 more than younger workers can save in these accounts. (See also: How to Choose a Retirement Account)

3. Start a Savings Account

Your savings shouldn't stop at retirement contributions. Goldman advised Dorsett to accumulate six months to two years' expenses in her savings account as an emergency fund.

An emergency fund enables you to cover the bills if you lose your employment, or to pay unexpected expenses like car repairs, without going into debt or being tempted to borrow from a 401(k).

4. Invest in Index Funds

Once the emergency account and retirement accounts are fully funded, start investing in index funds, which give you a diversified portfolio with low management costs, Goldman said.

A recent white paper, "The Case for Index Fund Portfolios" (PDF) compares low-cost index funds with actively managed funds and concludes that investors are better off investing in all index funds. (See also: 3 Steps to Get Started With Index Funds)

5. Put Savings on Autopilot

Investment adviser Betterment advocates having your investment deposit taken out of your checking account on the first day every paycheck is available to maximize the amount of time your money is in the market and minimize the temptation to spend it.

6. Ignore Your Investments

This last step can be the toughest, Goldman said, but it's important to stay the course unless your circumstances change drastically.

"Assuming you have the right investment portfolio, you don't want to be changing it based on random opinions of friends, neighbors, relatives, or experts on TV. No one can predict the future, and 'everyone' is usually wrong," he said.

Are you nearing retirement? What steps have you taken to accelerate your retirement saving?

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Guest's picture

You should mention rebalancing in Step 6.

Guest's picture

How much does Dorsett make? I ask because 90% of Americans cannot afford three parts of your plan, much less six tiers. If she made an outstanding salary like 100K, after taxes she would have 70K after 401k, $47K, after IRA, $40.5K. Now she has 3416 per month to save a two year emergency fund, so let just take $500 per month for that, she is left with $2916 to live on. How do you expect her to live a nice life on $3k per month? I mean she could move to Meridan, MS and get shanked while walking her dog in the morning and her sweet ran down, termite infested 100 year old house robbed at night. Well, lets break down the $2916 per month. Car w/fuel, insurance, maintenance, etc $500. Home, plus termite treatments and metal bars $700, utilities, Tv, interwebs, water, maintenance, $500 easy. Food $300. we are down to $916. At her age, doctor bills, prescriptions, unexpected expenses for house, car, body, insurances (life, homeowners, flood).....we are in way the negative.........I hope she does not like enjoying life too much. American Dream, right?
This assumption that all Americans are well off needs to stop. Both the Govt and most liberals seem to think everyone is "living the dream" when in all actuality, they are barely getting by. This assumption is destroying this country because we are now basing policy off this falsehood. 17 Trillion in debt, ObamaCare, and if Democrats when the House in mid-terms you will see amnesty for 15+ million people and no telling what other un-read trillion dollar bills will be passed. The problem with amnesty is that we have a culture of leeching of others, not trying to work hard and build a great life. Read that sentence again, let it sink in, because it is true. No, not all of the immigrants will leech, but more will than the rest of the immigrants combined taxes will be able to cover...hence, more debt on our backs propping up millions of people.
While most WSJ readers will be bashing me, I am a realist. The people that all this legislation I speak of ARE NOT affected by it. They criminals are not moving into their neighborhoods, right Howard Stern, Matt Damon, and George Clooney? The added "taxes" are not affecting you either, are they? Your $500 million per year salary can afford a few thousand more taxes a year, the other 90% can't. I can't. I also do not get to express my flawed and biased opinions to millions like you celebs, so here it is on WSJ. Are the drug dealers moving onto your block? If you want to give taxpayers money to everyone, why don't you give a few of your mansions away, give out your money....I tell you what, keep 60K per year and one house, give the rest up, do not expect everyone else that barley gets by to flip the bill......long as it is not YOUR wealth, right? As long as it it is not your kids living and going to school around the drug dealers, right Matt? Let me guess, your argument is "you worked for your wealth,"
GUESS WHAT, 48% of Americans today are trying to do the same, but we will always be Middle Class. We will never be celebs or millionaires, so stop taking from us.

People are finally seeing the light and the BS spewed out this Administration (if you don't see the lies, you are f'ing stupid) and I appreciate the Republicans standing up for what this country was....WAS. Work hard, raise a family without fear of drugs and abduction, etc. Lead your own way, not leech of others (the culture of this century.) I do believe all americans should have healthcare, they just did it ALL WRONG, and the timing could not be worse....Isn't it "un-american to raise the debt trillions" Mr. Obama. Just another line of BS, right?

What happened to America? That is the question everyone will be asking in 10-30 years. Answer, it committed suicide, killed by Americans.

What this country was built upon is now the enemy. Capitalism, hard work, a strong family foundation, education, military.....all enemy and held hostage by liberals, and now successfully setup to be perceived as wrong and criminal. Leeching and free everything is the new American way to succeed. This is suicide.

Guest's picture

Thanks for this article. I'm in much the same situation as Dorsett. At 58, I finally found a new job after being laid off more than a year ago. I have been investigating strategies for investing once I refund my emergency fund. I need something relatively simple, and with frugal living, hope to reach financial independence, if not retirement.