How to Catch up After a Retirement Savings Break
After an employment gap, here's how to resume a retirement savings plan
There are a number of reasons people temporarily stop saving for retirement: job loss, to care for children or elderly parents, to return to school, or to cope with medical expenses. But once you begin saving for retirement again, you will need to boost your savings rate to make up for the gap. "Being unemployed for a year is something that one can overcome when it comes to retirement savings, but they will need to save more and save faster and invest in a way that makes sense for them," says
A break in retirement savings during your 20s or 30s has the biggest impact on your final retirement account balance because of all the compounded returns you'll be missing out on. But young savers can make up for the lost savings with relatively small increases in their retirement account contributions because their nest egg still has many years to grow before retirement. "If you're in your 30s and you stop working for a year, you will have another 30 years to make it up," says
Consider a worker who earns
The nest eggs of savers closer to retirement will be less damaged by gaps in saving, but the increases in contributions required to catch up are much larger. "When they do find another job, they really are going to have to put a lot of other things on hold in order to save as much as they possibly can for retirement," says Walbert. For example, a 55-year-old who saved continuously throughout her career would still be able to replace 46 percent of her salary in retirement if she took the next five years off from saving, compared with 39 percent for a 25-year-old with a five-year retirement savings gap,
Advance planning for career gaps.
Workers could alternatively prepare for expected or unplanned gaps ahead of time by saving more than they need to while they're employed. If you know you are going to take a few years off to raise children or you work in an industry where layoffs and business closures are common, it's wise to tuck as much as you can into retirement accounts while you are working so that money can compound during your career break. For example, if you calculate that you need to save 13 percent of your income annually to meet your retirement income needs, consider saving 15 percent while you are employed. Saving 1 or 2 percent more than you will need for retirement will allow you to absorb the impact of a temporary saving hiatus. "Before the children come along, you really need to save aggressively and max out an employer-provided plan," says Walbert. "If you are expecting periods of unemployment you should, well in advance of that, make sure you have plenty of money in your rainy day fund so that if it does start raining, you can survive without cashing in your 401(k)."
- How to Complain to Companies and Get Results
- How to Catch up After a Retirement Savings Break
- Gen Y's $2 Million Retirement Price Tag
- Social Security: On Entitlements and Ponzi Schemes
- Reducing Debt Load Key to Financial Health
- Dipping Into Your Retirement Account to Pay for College
- Why Your Retirement May Not Be Permanent
- The 10 Most Difficult Retirement Decisions
- Retirees Increasingly Depending on Social Security
- Tougher Rules for Credit Bureaus Could Be On the Way
- Tips for Picking an Affordable Place to Retire
- One Move Could Boost Your Retirement Security
- 401(k) Withdrawal Mistakes to Avoid
- 6 Little-Known 401(k) Perks
- What's the Best Way to Save for College?
- How Do You Preserve Purchasing Power in a Tumultuous Economy?
- Steps to Financially Prepare Your Student for College
- How to Avoid Money Envy
- How to Make a Financial Comeback
- What New Inflation Formula Would Mean for Social Security Recipients
- How to Predict Your Social Security Payout
- Is Your Retirement Plan Obsolete?
- How to Strengthen Your Retirement End Game
- How to Avoid Online Shopping Scams
- Dodging the Real Estate Down-Payment Obstacle
- Will This Home Renovation Pay Off?
- Family-friendly Ways to Save Water
- 10 Reasons to Delay Retirement
- Why Celebrities Run Into Money Trouble
- What Are Your Rights When a Debt Collector Calls?
- 5 Crazy Money Ideas That Just Might Work
- Many Grocery Staples Are Getting More Expensive
- Vow Not to be a Financial Mismatch
- How to (Finally!) Agree About Money
- To Save Money Get in the Habit of Bargaining
- How to Cope With Retirement Sticker Shock
- How Can We Make 401(k) Plans More Like Pensions?
- 8 New Retirement Rules
- 6 Ways You Can Save Money by Going Green
- New Online Marketplace for Financial Advisors Stirs Up the Market
- AARP on Social Security: A Game-Changer for Entitlement Programs?
- Online Banking: Is It Safe to Bank Online?
- 10 Things You Should Know About Your IRA
- Author Maps New Phase of Life Between Middle and Old Age
- Don't Wing It with Frequent Flier Programs
- Appealing An Insurer's Denial Is Often A Good Strategy
- Midyear To-Do List: 12 Steps to Getting Your Finances on Track
- Life Insurance After 50
- Is Long-Term Care Insurance Right for You?
- Private Disability Insurance Can Cover You if Your Employer Doesn't
- Careful Planning the Key to Comfortable Retirement
- Should You Count on Social Security in Your Retirement Plan?
- How to Cope With a Forced Retirement
- How to Protect Your Corporate Benefits
- How to Retire on Social Security Alone
- Do You Have Unclaimed Property You Don't Know About?
- Solo 401K Lets Self-Employed Shelter More of Their Income
- 7 Ways to Stay Ahead of Inflation in Retirement
- Why We're More Dependent on Government Support Than Ever
- 7 Biggest Money Mistakes College Graduates Make
- Homeowner Savings Tips: What You Might Not Know
- Why Raising Social Security's Retirement Age Is a Benefit Cut For All
- How to Get Retiree Health Insurance Before 65
- Wills and Estate Planning: Peace of Mind for Your Family
- Put Yourself to the Test: Are You Fiscally Fit?
- 30 Ways to Cut Health Care Costs
- 7 Excuses for Not Saving for Retirement
- What Will Missing Mortgage Payment Do to Your Credit Score?
- Automated Retirement Plans Can Help But Watch for These Pitfalls
- How to Save for Retirement on a Low Income
- What to Do If You Cannot Pay Your Tax Bill
- High Earners Face State Tax Hikes
- 9 Ways to Pay for Retirement
- Is Your Partner a Good Money Match?
- 10 Things You Didn't Know About Social Security
- Don't Forget to Protect Your Retirement Plan From Inflation Risk
- Medical Deductions For 2010: What You Need to Know
- Look Beyond Sticker Price for a Car's True Costs
- HED Reverse Mortgages
- The Magic Numbers of Retirement Planning
- Can I Afford a Baby?
- 6 Ways to Cash In On the New Health-Care Reform Law
- The Least You Need to Know About Retirement
- Tax Changes for Health Insurance Buyers, Home Buyers and the Unemployed
- Small Changes to Get out of Debt and Save Money
- Is Your 401k Riskier Than You Think?
- 10 Places to Go Carless in Retirement
- Deducting Medical Expenses
- Public Support For Government Workers a Case of Pension Envy
- How to Spring Clean Your Personal Finances
- How to Save for Retirement Without a 401k
- What You Really Pay for at the Pump
- Converting Regular IRA to Roth: A Good Idea?
- Retirement Savers Need to Plan for the Critical Draw-Down Phase
- 9 Secrets of Retirement Happiness
- 401k Mistakes Job Hoppers Make
- Why Gen-Y Might Be Too Frugal
- How to Profit from your Hobbies and Interests
- Websites Make it Easy and Even Fun To Reach Savings Goals
- How to Evaluate College Financial Aid Options
- Find This Year's Investing Strategy in Last Year's Tax Return
- Tips for Filing Your 2010 Income Tax Return
- Bad with Money? Blame Your Parents
- The Financial Planner Relationship is a Fragile One
- 7 Reasons Why You Don't Have a Pension
- Tax Mistakes Parents Often Make
- SEC Takes Steps Toward Financial Planning Overhaul, But Issues Remain
- 5 Smart Ways to Save Money for Your Children
- Financial Advisers: Prepare for Big Tax Hikes in 2012
- How to Tweet Your Way to Retirement Goals
- The New 401k Plan: Not Just for Retirement Anymore
- How to Shop Around for the Credit Card That Suits You
- A Better Use for Your Tax Refund
Personal Finance - How to Catch up After a Retirement Savings Break
(c) 2011 U.S. News & World Report