Exactly how much money you need by the time you retire varies depending on who you ask and what your goals are. Americans themselves believe they need around $1.8 million, an astonishingly high figure, to retire comfortably or at their current lifestyle, according to a survey from Charles Schwab. Financial experts recommend something that is around 10 times your pre-retirement income by the time you are 67.
Social Security: Not Everyone Gets the Full 3.2% COLA Increase — Here’s Why
More: The Simple, Effective Way To Fortify Your Retirement Mix
It’s not surprising, then, that many people approach retirement falling very far short of these figures. If you should be facing retirement in around 10 years, but find that you have as much as a $500,000 shortfall in what you need, is it even possible to make that up? Financial experts suggest that it is tough, but not impossible, if you follow some of these strategies.
Understand the Three Levers
When it comes to accumulating income over time, there are three primary “levers” or methods, according to R.J. Weiss, a certified financial planner and founder of the personal finance site The Ways to Wealth. “The primary levers to accumulate $500,000 in 10 years are investing more, spending less in retirement, or delaying retirement (including part-time work). Ten years allows for compounding to work in your favor. This goal requires careful planning and long-term strategy, not quick fixes. By understanding these levers and making informed choices, you can position yourself for success without unnecessary risks.”
Retired But Want To Work? Try These 8 Jobs for Seniors That Require Little to No Experience
Delay Retirement or Work Part Time
Another approach is to delay your retirement or work part time, Weiss said. “Extending your working years, even with part-time work, can have a substantial impact on your retirement savings.”
He explained that a $500,000 balance is equivalent to $20,000 a year in income if you invest it. “Earning $20,000 in retirement through part-time work can help make up that shortfall. Although aging might limit this income eventually, it’s a practical way to see how part-time work can enhance your retirement.”
Diversify Your Portfolio
Michael Barton, a personal finance advisor and senior writer for Wallet Savvy, recalls a client he used to work with, whom he calls Ella. She wanted to turn a modest sum into a small fortune in about 10 years. “Ella started with a diversified portfolio, splitting her investments between stocks, bonds, and some commodities,” Barton said. They did not jump on any hot trend stocks, only sought out stable, consistently performing ones. However, Ella also set aside a small percentage for more high-risk, high-reward investments. “Not everything paid off, but some did, spectacularly so. That’s why diversification is key. It’s like playing both the tortoise and the hare.”
Utilize Compound Interest
Another thing to consider is the magic of compound interest, Barton said. Compound interest is where you essentially re-invest the earnings you make back into your portfolio. “Albert Einstein once called it the eighth wonder of the world. And boy, was he onto something. By reinvesting gains, the potential for exponential growth is phenomenal. Ella, for example, used her dividends to buy more shares, amplifying her returns.”
Proceed With Caution
It’s also helpful to know what you should not do to build wealth, and investing in cryptocurrencies and high-frequency trading are not always a great idea, Barton said. “These can indeed offer large returns. But remember, they also come with substantial risks. My two cents? Tread cautiously. Some people have made fortunes with Bitcoin and its peers, while others… well, let’s just say they weren’t as fortunate.”
He said, “It’s essential to balance the allure of fast gains with the stability of traditional investments. This isn’t a popular opinion, especially in today’s get-rich-quick climate, but I’ve always believed in mixing caution with courage.”
Harness the Power of LEAP Options
A less common strategy for a savvier investor involves using Long-Term Equity Anticipation Securities (LEAP) options, according to Bader Chowdry, a chartered professional accountant and principal owner of Insight Accounting. “These are long-term call options that allow you to control a stock at a fixed price for an extended period, often up to two years or more.”
If you are able to correctly time the purchase of LEAP options on fundamentally sound companies, you can benefit from potential stock price appreciation without committing the full capital required to purchase the stocks outright. “However, it’s essential to understand options thoroughly before implementing this approach, as they involve complexities and risks that demand careful consideration,” Chowdry said.
Aggressively Save
You aren’t going to make it to $500,000 by occasionally saving or investing money, said Kami Adams, a financial advisor with Creative Legacy Group. Instead, you need to “adopt an aggressive savings approach, allocating a substantial portion of [your] income towards retirement contributions. Maximizing contributions to tax-advantaged accounts such as a 401(k) or IRA can significantly boost savings over time.”
Regularly Rebalance
Don’t just put the money aside and expect it to grow, either, Adams said. “Periodically review and rebalance the investment portfolio to maintain the desired asset allocation. This ensures that the portfolio remains aligned with the individual’s risk tolerance and long-term objectives.”
Seek Additional Income
Especially with a limited time window in which to raise a lot of funds, this might be the perfect time, Adams said, to “[e]xplore opportunities for additional income streams, such as part-time work, freelance projects, or rental properties. These extra funds can be directed towards retirement savings.”
Make a Lifestyle Adjustment
Lastly, eking out more money with which to invest or save often means cutting back elsewhere. “Encourage the individual to consider modest lifestyle adjustments to reduce expenses and increase savings potential. Every dollar saved can have a significant impact over the long term,” Adams said.
More From GOBankingRates
Suze Orman: 3 Things You Must Do If You Receive an Inheritance
How To Get Free Money: 13 Proven Ways
3 Things You Must Do When Your Savings Reach $50,000
10 Smartest Ways to Make Your Money Work for You, According to Experts
This article originally appeared on GOBankingRates.com: Retirement Savings: How To Make Up a $500K Shortfall in 10 Years
