I’m 55 and Haven’t Saved Anything for Retirement, So What Should I Do?

You’ve been busy with life, juggling many balls to keep the boat afloat for you family and trying to dodge all life’s curveballs…and suddenly it hits you. You’re 55 and haven’t saved anything for retirement. That’s a scary realization for anyone.

Truth is it happens to many people, more than you realize. There’s no use freaking out and living with constant regret or anxiety. The key now is to start saving and taking other steps right away while there’s still time to do so.

Introduction

Remember back when you were in your teens and couldn’t wait to reach 21? Oh, the plans and visions of living your own life, partying whenever and wherever you wanted, and basically giving the world the “middle finger,” in terms of being told you had to do things a certain way and conform.

You were invincible and immortal. Oh yeah, you were the rebel!

Fast forward five or 10 years and you were still full of yourself, and definitely were still going to live forever, but you’d taken on a few bags and some responsibility. Living forever had somehow lost just a wee bit of luster.

And life continued to move on like it would never end… All of the sudden it’s three decades later and suddenly you had an epiphany. “I’m 55 and not gonna live forever.” Worse yet, it hit you that you hadn’t given much thought to retirement or saved anything. You’d been caught up in life and had just been paying bills and keeping the circus up and running.

It’s not a new story. But now that it’s your story, it hits like a gut punch. And it like leaves you with some serious anxiety…and probably some real fear as well.

While all of that might leave you depressed, there is a bright spot to focus on – there are things you can do that can make a difference. Even allow you to eventually retire and not do so living in fear.

Start with some perspective

No doubt you’ve faced times in your life where you didn’t see a path through. Believed you couldn’t get through the next moment. Even found it hard to step back and catch your breath.

But you did. And you survived.

Often it comes down to taking a breath – a pause – and reflecting in order to gain some perspective. That same approach will serve you now – it’s time for some perspective.

Think you are alone?

The U.S Government Accountability Office estimates that nearly half of households headed by a person 55 or older have no retirement savings. Looking at things from a different standpoint, the Federal Reserve estimates in their 2022 report – Economic Well-Being of U.S. Households (SHED), that approximately 32-percent of non-retired adults age 45-59 felt their retirement savings plan was on track and heading in the right direction.

There’s obviously more people in the same boat as you versus those who are already on track.

So, there’s some perspective that can be helpful – you’re not alone!

Now take a step back to breath, let some of the anxiety dissipate…and start to take action!

Additional perspective – according to the Social Security Administration, as a male you can expect to live to an average age of 83, and age 86 for a female. That’s a lot of years from now if you are in your 50s.

Translated – there’s still probably many years to save, so forget about the “how’s” and “why’s” of the past…focus instead on what needs to be done now.

Prioritize saving

We know, this is a lot like saying strive to be a better person, or become wiser.

It’s doable. If you step back and assess you might find there are many things you’ve built into your budget over the last 20 or so years that have remained constant, even though your life continues to change.

A good examples is that you and your spouse probably make more now in income from your employers. You’ve probably just grown accustomed to spending it all.

No doubt you’re still dealing with those expensive bills associated with raising a family (home, kids, education, family vacays, etc.), but there’s a good chance you are overspending on areas like food (groceries and dining out), subscription services (Netflix, Prime, unused health club, etc.), other entertainment, and other areas of discretionary spending.

If you assess your spending now you’re likely to find there’s a little more room in the budget versus in the past. Money that you could put away now monthly, with little pain or effort.

If you are serious about getting going, starting with just $100 a month adds up to $1,200 annually, not including interest earned on your savings.

Consider the fact that if you did nothing more than save that $100 per month from age 55 to age 67 (full retirement age in terms of Social Security benefits), earning say 5.5%, which is certainly doable, and with no prior savings, you’d have over $25k in savings. At $150 a month you’d be looking at nearly $38k, and at $200 per month you’d have more than $50k.

$100 per month…

You can do that… Probably much more. And let’s face it, given your situation the harsh truth is that you and your spouse aren’t likely to be retiring anytime soon. So you will be working and bringing in paychecks, affording the opportunity to begin to put some back.

Even a small cutback in monthly spending now, combined with investing the money and taking advantage of the principle of compounding interest, and you could have more than $50k for your retirement in a dozen years. Think how much more that can grow to by proactively saving more each year over the next 10 to 15 years.

In addition to personal savings, there’s qualified retirement savings (more on that shortly), as well as other forms of income you might be able to utilize for retirement, which all end up in your kitty.

Two big ones are Medicare (potentially reducing your medical care costs) at age 65, and starting your Social Security benefit in your upper 60s to 70 (more on that later); suddenly your situation is a lot better than it is now.

The good news is the fact that the amount you could save, and in turn invest, could add up quite a bit. And like most things, once you see progress it gets easier to get more aggressive and further improve your situation in a relatively short period of time.

Lose the debt

You’ve certainly heard this before, but it bears repeating – debt can be a huge burden to lug around. Credit cards. Loans. Mortgage.

Betting you are paying a fair amount of interest and feel trapped now. What can you possibly do to address your debt in a manner that makes a difference?

Being realistic, you’re not going to be able to pay off your mortgage right away, if you still have one, but you can create a plan for starting to speed the process.

This can range from increasing your payment amount to pay down principle sooner or splitting your payment into half and paying twice per month, which amounts to an extra payment per year and can actually shave a number of years off your repayment schedule. Or even refinancing your mortgage to a shorter period (at hopefully a lower rate), depending on how much you still owe and the number of years you expect to continue paying.

Even if you can’t pay it off, do your best to pay it down as much as possible before retiring.

Why is this so important? Housing is the number one expense for people in retirement, so reducing that amount in any meaningful manner can make a big difference in terms of being able to maintain your standard of living…even retiring at all. Keep in mind that housing does include mortgage, property tax, insurance, maintenance and repair costs.

Not only does paying off (or down) your mortgage eliminate or reduce a major expense in retirement, but it’ll also provide more cash to save and invest, which can add considerably to what you’ll have at that stage in life.

Moving on to those nasty credit cards. No matter you current balance, stop using them and pay in cash as much as possible. Begin targeting your cards now with a plan of carrying no debt of this nature into retirement. Even paying down balances starting right away will reduce your monthly interest, which can in turn go to savings.

Don’t forget the car. Yes, you want something decent. And you need something reliable, so we aren’t talking about selling and taking public transportation. Or buying an old “beater” and rolling the dice every time you have to drive it.

Instead, try to pay off your car with even slightly higher payments each month, which will reduce principle and help you pay the vehicle off quicker.

Once you do pay it off, continue to make that monthly payment into a separate interest-bearing savings  account. This money should be used to purchase a vehicle if and when needed in your retirement. Ideally you’ll have enough to purchase in cash and avoid any payments when that day comes.

Contribute

While we don’t list it first, you should do this at the beginning as it is easy enough and can supercharge your ability to save specifically for you and your spouse’s retirement. Simple place to start – set up a retirement account, such as an Individual Retirement Arrangement (IRA).

If you and your spouse work for employers who offer employer-sponsored qualified retirement accounts, like a 401(k), sign up and start saving immediately. They will pull the money out directly so you can’t be tempted.

Additionally, many employers offer matching, in which case they match a percentage of your contribution, which further inflates your savings over time. This is a great benefit. T. Rowe Price stated in a 2021 report that the average employer matched between 50-percent to 100-percent of your contribution, up to an average of 4.5-percent of your annual compensation, with some offering up to six-percent and even higher.

To pass up on this kind of benefit equates to leaving money on the table.

Whether it’s IRAs or a 401(K) or similar, annual contributions provide tax-deferred savings that can take advantage of the concept of compounding interest, which over time can significantly grow your savings. Additionally, there’s the added benefit of reducing your taxable income each year you contribute, which saves you in taxes for each year you do so.

One other option is a Roth IRA. The money you invest is with after-tax dollars, but the savings grow tax-free over time – you don’t pay taxes on those savings when you start withdrawing them later when you are in retirement.

Maximize contributions

Seek to maximize your savings, but be aware of contribution limits. The IRS allows certain amounts of annual contributions for individuals and married couples. Limits according to the IRS:

The 2023 contribution limit for individuals who participate in 401(k)s and similar employer-sponsored plans is $22,500. Plus they can contribute up to $7,500 in a catch-up contribution, bringing their maximum annual contribution to $30k. Those number increase to $23,000 in 2024, and with the catch-up provision (remains at $7,500) the total is $30,500.

For individuals contributing to an IRA, the annual limit is now $6,500. And if you’re 50 or older, you can make a catch‑up contribution of $1,000, increasing your allowable contribution limit to $7,500. Keep in mind that each person can take advantage of this provision. In 2024, the limit per person increases to $7,000, plus the $1,000 catch up provision (remains the same), or $8,000 annually.

One last thing to be aware of is the fact while an individual or both spouses can contribute to a 401(k) or similar employer-sponsored plan, as well as IRAs, there are phase-out provisions on how much in total can be contributed, as well as income limits. Learn more here.

Keep that job

Given you’re worried about not having savings at 55ish or older, it goes without saying you don’t plan to retire soon.

The good news is that mindset will serve you well in this case. In fact, on a number of fronts.

Let’s start with a little perspective regarding when most people expect to retire. According to a 2022 Gallop survey, the average age of retirement is age 61 (up from 57 in 1991), and for those still working in 2022, the average age of expected retirement is 66, up from 60 in 1995.

That aligns with two important retirement tools:

No doubt you’ve heard of it, but like most you may not know much about it. Medicare is a government-sponsored healthcare plan for older Americans. You become eligible starting at age 65, which will reduce your medical costs (not including long-term care), which creates savings that increase your bottom line.

But until then either you or your employer is paying for you and your spouse’s health care premiums, or you’re doing so yourself. Hopefully both your spouse’s employer and your own both pay, which again saves you the expense of making those payments. More money to save and invest.

The second major benefit from the government is Social Security, which you’ve actually been paying into for probably decades. You’re actually eligible to start drawing Social Security payments at age 62, but your full benefit will be reduced approximately 30-percent for the rest of your life if you do so.

Reaching full-retirement age (now 67 for those born in 1960 or later) before starting to tap into Social Security leaves you with your full SS benefit. If you wait till age 70, the monthly benefit payment increase by 32-percent to 132-percent.

To provide perspective, the average Social Security benefit for the typical individual in 2023 is $1,782 per month, according to the Social Security Administration. If you started when eligible at age 62, you’d be looking at a discounted amount of $1,247 monthly. And that’s for your lifetime.

If instead you wait to start drawing the benefit until you reach full retirement age you’ll receive your full benefit. Were you able to hold off till age 70, the benefit would actually increase to $2,210 monthly for life.

That’s nearly a difference of a thousand dollars each month for the rest of your life by waiting to age 70 versus 62. While that may not be possible, or even prudent given your personal circumstances, you want to know what your options are going into retirement.

An added benefit to continuing to work is the fact that each year you work and bring in a paycheck, that’s one less year you are taking distributions from your savings to pay the bills and survive…your retirement savings are extended by a year.

And since we’re talking about continuing to work, this is the age of the gig economy. Translated, you can relieve some of your anxiety and increase your income, and ability to save, by taking on additional work.

One good option is working part time. Or you can start your own small business. Lots of people now do so. Whether it’s a hobby- or passion-based business, it can not only increase your happiness, but it can also add to your bottom line.

Oh yeah, there’s also another benefit to working longer. An Oregon State study reported findings which indicate working longer increases the likelihood of living longer.

Conclusion

Okay, so hopefully you’ve calmed down a bit and realized you can survive this, just as you learned to do with so many of the other curveballs life threw at you along the way.

But that’s doesn’t mean sit back and chill. You need to get going – the window to address your lack of savings at this point in your life will close fast.

As you do start to accumulate you should think about getting an organized retirement plan in place. And when doing so, work with a qualified financial advisor and/or retirement planner.

At Oak Harvest we may be able to help you. We build holistic, comprehensive retirement plans that help people address income in retirement, as well as all other relevant issues, utilizing strategies that cover taxes, spending, healthcare, legacy, and more, customized to a family’s specific needs.

If you are ready to take the next step and talk to a team of retirement planners who can advise on all your retirement needs, and who will put your interests first, Schedule a call today!