A 2005 study from the Vanguard Center for Retirement Research noted that while the overwhelming majority of age-50-and-older participants in company-sponsored retirement plans are eligible to make catch-up contributions to their accounts, they don’t bother to do it. Why? Vanguard said the strongest influence tended to be household income-or the lack of it.

What’s a Catch-Up Provision?

Passed in 2001, the Economic Growth and Tax Relief Reconciliation Act contained a number of provisions designed to encourage retirement savings in the United States. Among the provisions was a higher contribution level for older workers in defined contribution retirement savings plans, such as 40l(k) and 403(b) plans.

Under the law, plan participants age 50 and older were permitted to contribute an additional $5,000 to their retirement accounts in 2006. How many people took advantage of this great way to shore up retirement savings before retirement? Only 13 percent. The Vanguard study showed that those likeliest to take advantage of the catch-up provisions already had healthy balances in their accounts.

Who Needs to Catch-Up?

Here’s an idea. If you’re 50 with an annual income of $60,000 and your financial assets (not including your residence) equal or are less than your annual income, you’re way behind. But if you have three or four times your salary in assets, you should continue saving, but you don’t necessarily need to shell out for catch-ups. The best way to determine what shape you’re really in is to sit down with a financial adviser who can take the whole picture into account: not only what you’ve saved and what you need to save, but what you plan to do in your retirement. Your decision to work-or not work-in retirement will help you answer this question. By the way, these catch-up provisions may not always be around. Unless Congress extends the provisions or makes them permanent, the act will sunset at midnight, December 31, 2010.

Other Ideas

If you’re running behind in your retirement savings, there are solutions:

1. Work more. Yes, it sounds silly, but as long as you discuss the tax implications in advance with your financial or tax adviser, get more money coming in the door and sock that cash away.
2. Re-balance. Again, get some advice, but depending on where your savings stand, see if your portfolio is exactly where it should be at this point in your life and whether it is correctly balanced against the number of years you’ll have until you start drawing on those funds.
3. Take a hard look at company stock you own. This is an extension of the re-balancing idea, but if you work for a company where you’ve amassed a considerable amount of stock, think carefully and unemotionally about whether you should continue to keep a stake that might be an uncomfortably large part of your portfolio. In other words, remember Enron and the number of people whose life savings were wiped out as a result of the fraud and financial failure of that company.