Approaching Retirement With Little Savings? Here’s How to Make It Work

Whether you were unable to save as much as you hoped to when you were younger or had to dip into your retirement accounts early, leaving the workforce with limited savings can make fully retiring difficult.

According to a 2024 BlackRock survey, less than half (47%) of retirement savers said they felt they were on track to retire with the lifestyle they wanted. Three-fifths said they were worried they would outlive their retirement funds.

Retiring with a smaller nest egg can be challenging, but with strategic planning and informed decisions, it’s possible to transition into retirement successfully.

Take Stock of Your Finances

Before you decide to retire, it’s essential to get an idea of your finances. You’ll want to take stock of how much you have saved up across different accounts, whether that’s your bank accounts, brokerage accounts, 401(k)s, or individual retirement accounts (IRAs).

“‘Do I have enough?’ This is probably the question I get asked the most often,” said MaryAnne Gucciardi, a CFP and founder of Wealthmind Financial Planning. “For clients, I start with a model [that includes] what they’re spending, what’s coming in, and what they really want to do.”

Ultimately, how much you want to have saved up depends on what you think you’re spending will look like in retirement.

The 4% Rule

If you don’t have a financial planner, it could be helpful to use a common rule-of-thumb, like the 4% rule, to figure out if you have enough money.

With the 4% rule, a retiree can take a 4% withdrawal from their nest egg the first year of retirement and then adjust it every year after that for inflation. This approach is designed to make your savings last for approximately 30 years.

This approach, however, doesn’t account for the income you’ll receive from Social Security or the fact that you’ll no longer have 401(k) or IRA contributions in retirement. Therefore, you may consider saving less than that amount, as your spending may decline in retirement.

You can also use retirement savings tables online to help you figure out if you’re on track to retire based on your age and income.

At the end of the day, these are just general guidelines, so make sure to personalize them.

Funding The Shortfall

After you’ve taken stock of your finances, there are many ways to try to fund the gap in your retirement savings.

“People can work part-time, they can downsize, they can relocate, they can have children move-in and share rent, mortgage, and other expenses. There are so many creative ways to get to retirement that you love,” said Gucciardi.

Consider Working Longer

If you’re still able to work, consider extending your career a bit longer—this gives you extra time to build up your savings, a shorter retirement to fund, and possibly the ability to delay collecting Social Security benefits.

And for those who are unable to continue to work full-time or in-person, there are some types of gig work—like freelance writing or tutoring—can be done entirely from home, offering retirees flexibility and the opportunity to create their own schedules.

Take Advantage of IRA Catch-Up Contributions

Those who continue to work can put additional money towards retirement. For IRAs, individuals age 50 and over can make contributions worth up to $8,000 for 2025. (The IRA and catch-up contribution limits are $7,000 and $1,000, respectively.)

Additionally, if you have a workplace retirement plan and are age 50 or older, you may be eligible to make catch-up contributions worth up to $7,500 for 2025. The total annual contribution limit, including the catch-up for 401(k)s is $31,000.

Plus, under SECURE 2.0, a federal retirement law, workers aged 60, 61, 62, and 63 are now able to make larger catch-up contributions, up to $11,250 in 2025.

Take a Look at Your Home Equity

If you own a home, you may not consider your home equity when evaluating your retirement nest egg. However, some retirees may be able to free up extra funds by selling their home and downsizing or moving to a lower-cost-of-living area in retirement.

One Vanguard study found that 60% of retirees who move end up in an area with a cheaper housing market. By moving to a location with a more affordable housing market, retirees unlocked a median home equity of approximately $100,000.

Note that this may not be practical option for everyone, especially for those who currently live in a low cost of living area but plan to move to more expensive region. Gucciardi also notes that retirees shouldn’t solely relocate based on cost, but should take a more holistic approach to their decision.

“When I have clients who say they are going to move or relocate to a low-cost area, I drill down and ask them: Who is going to take them to appointments? Are they moving someplace where they have a community?” said Gucciardi. “At some point, you will need more help and need a network.”

Think Carefully About When to Collect Social Security

By delaying Social Security, retirees can earn extra money to the tune of hundreds of thousands of dollars over the course of retirement, yet delaying might not be the right choice for everyone.

When choosing when to start collecting benefits, carefully weigh factors such as your health status, family medical history, whether you have a spouse who will collect on your record, life expectancy, and if you have additional retirement funds to rely on if you choose to delay.

Waiting to collect past full retirement age (FRA)—which is age 67 for retirees born in 1960 or later—results in an 8% annual boost in benefits up to age 70. That means retirees can earn up to 124% of their benefit by delaying.

For example, if your monthly benefit is $2,000 at age 67, it would be $2,480 if you waited until age 70. That would be an additional $5,760 a year.

Yet waiting past FRA may not be the best strategy for everyone.

In a 2024 Morningstar study, researchers found that waiting until age 70 is often a better strategy for individuals who don’t need money immediately, are healthy, and, if they’re no longer working, have other funds and retirement accounts they can tap while they wait until age 70 to collect.

The Bottom Line

Retiring with limited savings isn’t easy, but it is doable with the right planning. Start by understanding your current finances and consider creative ways to fill the gap, like part-time work, putting extra money into your 401(k) or IRA, or tapping home equity.

You’ll also want to be deliberate about when you collect Social Security benefits–delaying benefits can pay off, but it may not be the right option if you’re in poor health or urgently need money.