For many people, it is an idea too scary to contemplate. For others, it's reality. Being in your 50s and having no meaningful savings is certainly a frightening and serious situation, but by no means is it hopeless. People are living longer and in better health than ever before and it is never really too late to start making positive moves. (These retirement income distribution methods are all viable; the one you choose will depend on your personal circumstances. Learn more, in 3 Ways To Make Your Retirement Funds Last.)
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Fix 'er Up
First, figure out how you got to be 50 and broke and how you can prevent that from continuing. In some cases, it could have been crippling medical or legal costs that were all but impossible to prevent. In other cases, it may have been major investment losses incurred in the stock market or a result of tying a large amount of money into corporate options and stock that are now worth much less.
Excessive generosity (like paying for college and weddings) may also have depleted the coffers, or low savings may be a product of excessive spending. Some people never think to pay themselves first (in the form of savings) and instead focus on having a new car every few years, top-of-the-line electronics, season tickets to professional sports and so on.
If the cause was out of your control, simply shift your focus to rebuilding your savings and do not dwell on it. But if the cause was controllable or avoidable, make sure to keep the lessons in mind. Sharp stock market losses may indicate you take on too much risk or do not diversify enough, while excessive spending suggests the need for stronger prioritization and discipline. (They may not be sexy, but bonds offer undeniable benefits to investors. Learn more, in Savings Bonds For Income And Safety.)
Change Your Plans
If you find that you have under-saved by the time you are 50, you have to change your plans to cope with this reality. For most people, the 50s are the peak earning years, and it is important to make the most of this. Forget about transitioning to part-time work or taking early retirement, and focus instead on making the most you can of these high-earning years.
You should give serious thought to working past normal retirement age. Mandatory retirement is all but gone from the U.S. system, and even just a couple extra years of work may pay for double those years in retirement. Keep in mind that there are rules concerning when you must put in for Social Security and begin withdrawing from IRA accounts, but that does not mean you cannot continue to work if you are healthy enough.
Folks who need to build up their savings quickly should also consider a second job. Of course this is not a fun proposition, but the name of the game here is catching up. More experienced workers may find that their experience gives them opportunities to work as consultants (beware of competing with your day job, though!), while others may find that simply working a few hours a week in retail gives them some very welcome extra money. (Here are four quick and easy ways to up your spending money; Increase Your Disposable Income.)
There is another advantage in getting a second job - insurance. Although it is not legal, it is not unknown for companies to try to squeeze out older (and more expensive) workers and having a second job in place could soften the blow if that happens.
Finally, plans that involve significant luxury purchases (a second house, a boat, an RV), expensive vacations or large gifts to relatives should be put on the back burner, if not cut out entirely. Remember, we are talking here about making sure that you have enough money to live comfortably for the 20, 30, or maybe 40 years of your retirement; surely postponing a major purchase is worth that extra comfort. (Making this dream come true takes work, but it's well worth the effort. Learn more, in 10 Steps To Retire A Millionaire.)
Play Catch Up
The first step in catching up to your savings goal is to put a tight squeeze on your budget. You don't have to resume the college kid diet of coffee and Ramen noodles, but if you find yourself with no savings and a habit for scotch or cigarettes, it might be a good time to really consider quitting and putting that money towards building your savings.
Another important step is to max out your opportunities to participate in 401(k) plans and/or IRA accounts. At a minimum, you should adjust your budget such that you can participate in your company's 401(k) at a level that triggers the employer match (if your company offers one). Even without that match, though, there is no reason not to contribute as much as you can afford. If your company does not offer a 401(k), you should not only set aside money into an IRA account, but you should do so on a mandatory monthly basis. Also, remember that there are "catch up" provisions for these accounts that allow older workers to contribute even more than their younger colleagues.
Do not make the mistake of ignoring regular brokerage accounts as well. It is true that a regular brokerage account does not offer the tax benefits of a 401(k) or IRA, but so what? If you are contributing everything you can to retirement accounts and you still have money left over, you should by all means open such an account and look at it as part of your comprehensive retirement plan. You will have to pay taxes on dividends and capital gains, but you can contribute as much as you like, whenever you like, and you do not have to take any sort of mandatory distribution. (Learn the requirements for withdrawing funds tax and penalty free, in Tax Treatment Of Roth IRA Distributions.)
Do Not Fret - but Do Not Delay
If you find that your plans somehow went awry and you are looking at meager savings for a retirement coming in 15 or 20 years, don't beat yourself up about it. There is still plenty of time for you to make strong positive steps and build a nest egg. It is important to get moving quickly, though, so do not put off the process any longer. Take an inventory of the financial decisions you have made in the past, the goals you need to achieve, and the resources available to you. With some hard work, discipline, and creative thinking, no situation is so bad that it cannot be fixed with some time and attention.
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