En español | "In a perfect world, we would all begin saving [for retirement] from the time we receive our first paycheck,” says Nicole Gopoian Wirick, a certified financial planner (CFP) in Birmingham, Michigan. “But we know life isn't perfect, and sometimes a late start is unavoidable.”
And very common. A 2018 Federal Reserve report revealed that 25 percent of nonretired adults have no retirement savings or pension at all and that only 45 percent of nonretired adults over the age of 60 believe their retirement savings plan is on track.
If you're 50 or older and anxious about retirement, you can still build your stash — with the right moves. “It's never too late to develop a comprehensive financial plan that is aligned with your objectives,” Wirick says.
Consider this methodical approach recommended by financial planners across the country. You may want to consult a planner in your area for advice that's specific to your situation.
1. Refine your budget, set up automatic savings
First, to free up cash, review your budget and eliminate any excesses. Food, for example, is one area where many people overspend, says Nadine Marie Burns, a CFP in Ann Arbor, Michigan. “Making a meal plan could save over $100 per month on discarded or unused items.”
Next, calculate a realistic savings goal and how much you can save automatically on a regular basis, Wirick says. If that's overwhelming, focus on making small changes over time. “And plan on living a really long life, possibly into your 90s, and do your retirement income calculations accordingly,” says George Gagliardi, a CFP in Lexington, Massachusetts. You can't control how long you live, but the average 50-year-old male can expect to live for another 30 years, to 80, and the average 50-year-old female can expect to live another 33 years, to 83, according to the Social Security Administration.
2. Pay down debt
Got credit card debt? Pay it down as quickly as you can to free up more cash to save. Malcolm Ethridge, a CFP in Rockville, Maryland, also recommends creating a plan to pay off your mortgage by the time you retire. “Eliminating housing expenses reduces the amount of income you will need to replace on an annual basis,” he says. Also avoid future debt, says Natalie Pine, a CFP in College Station, Texas. “For example, if you have car debt, put the payments into an account for a new car even once it is paid off, so that eventually you can pay for a car in cash and overall pay less.”
3. Stay invested
If you have a nonretirement portfolio or if you're self-employed and administer your own retirement fund, be sure to set up automatic investments so you can take advantage of dollar-cost averaging. With regular investments, you'll buy more shares when stock prices are cheaper and fewer when they are expensive. More important, you won't have to remember to write a check each month.
You also need a mix of different types of investments — with at least 60 percent in stocks — that is aggressive enough to help you to reach your goal over time, says Sandra Adams, a CFP in Southfield, Michigan. But don't take so much risk that you're tempted to cash out when the market drops. “Jumping in and out of the market can cause huge setbacks in your plan, and if you are already starting late, you can't afford those setbacks,” she says.
4. Max out your contributions, if you can
If you have a retirement plan at work, contribute enough to get the maximum match offered by your employer, says James Shagawat, a CFP in Paramus, New Jersey. “You can contribute up to $26,000 if you're 50 or over.” You should also ask if your company has additional retirement savings plans available.
One caveat: If your employer matches with company stock, you may become subject to “concentration risk.” A study by the Employee Benefit Research Institute showed that 401(k) participants who get their employer match as company stock eventually have more than half their total account balances invested in that stock. If that's the case, then poor company performance may affect your returns.
You can balance that with contributions to a Roth IRA with diversified investments. Because Roth contributions are made with after-tax dollars, your withdrawals won't be taxed when you start taking them at retirement. You can contribute up to $7,000 annually if you're 50 or older, Shagawat adds. “Eligibility is phased out between $125,000 to $140,000 of your MAGI [modified adjusted gross income] in 2021 if you're single, and $198,000 to $208,000 MAGI if you're married and filing jointly.” Be sure to make these investments early in the tax year rather than waiting until the April 15 tax-filing deadline the following year, says Justin Meinhart, a CFP in Winston-Salem, North Carolina. “You can pick up more than a year of growth and compounding on those dollars.”
5. Plan for emergencies
Also be sure to protect your retirement stash with an emergency fund to cover unexpected expenses. You can build it by depositing raises or bonuses you receive, Pine says. Also, she adds, think about insurance, including disability. “If you can't work anymore at 50 and haven't saved, it is going to be hard to come back from any setback. Make sure you have proper home, auto, umbrella policies. Make sure you have health insurance.”
6. Look for ‘found money’ or a side gig
Still need more cash? Then find a part-time job you'll enjoy or sell possessions you no longer want via an auction or by using one of the “sell your stuff” apps that are now available.
You might also consider selling your home and moving to a smaller place or to an area with cheaper housing costs, says CFP Benjamin Offit of Towson, Maryland. Downsizing can mean considerable savings that you can stash for the future.
Finally, check out your state's lost asset site for any old accounts, says Sarah Carlson, a CFP in Spokane, Washington. “If you have had other employers, you may have accounts that were turned over to the state. My clients have reconnected with money they forgot they had, or lost connection to, because they moved and never received documentation.”
7. Work as long as you can
Gone are the days when folks retired at 60 or 62, says Sean Pearson, a CFP in Conshohocken, Pennsylvania. Some of his happiest clients work past 60 or 65 — perhaps not in a high-stress, 40-to-50-hour-a week job but in something lower key. The SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2019 allows individuals with earned income to continue contributing to traditional IRAs even after turning 70 1/2. “For every year you continue to earn income and save, that is one less year that your savings needs to pay for you in retirement,” he says.
Patricia Amend has been a lifestyle writer and editor for 30 years. She was a staff writer at Inc. magazine; a reporter at the Fidelity Publishing Group; and a senior editor at Published Image, a financial education company that was acquired by Standard & Poor's.