The gold standard for retirement savings is to start as soon as you enter the working world. Not everyone is fortunate enough to be able to afford to save on their entry-level salary, though. Or you might have put off saving, and now it’s catching up with you quickly. You may be asking questions like how much should I have saved for retirement by age 50?
The good news is, you can start retirement planning at 50 even if you have no retirement savings. At 50 years old, you have a limited amount of working time left, so it’s important to start immediately. It’s not just about starting to save for retirement at this point: It’s about how you are growing your savings through smart strategies and concrete actions.
Choose the Right Retirement Date
What happens if you have no retirement savings? The best retirement strategy for 50-year old workers with little or no savings is don’t jump the gun. Choose your retirement date strategically to maximize your eligible benefits and income.
Your full retirement age (FRA) for Social Security benefits varies depending on your year of birth. Retiring before you reach your FRA, even by a month, can reduce the benefits you’ll receive. Delaying your retirement extends the amount of time you live on your earned income, gives you more time to build your savings instead of drawing from them, and increases the chances you’ll be eligible for your full benefits. It’s a win-win-win.
Increase Your Income
You can only save from what you bring in. When you’re building retirement savings at 50, you have 15 years or more to save. It’s doable, and you’ll be better set up for success if you can boost your earnings to make up for some lost time.
Earn more at your job
Your best source of extra income can start with the job you already hold. Try these strategies:
- Ask for a raise: Come prepared with details about your accomplishments to up your chances of success.
- Work toward bonuses: Make a policy for yourself to save any additional bonuses you earn.
- Increase hours: Extra shifts and overtime can help fill out your retirement account. Note that this only works for employees classified as non-exempt.
Work a side gig
Taking on a side job puts more money in your pocket. If you begin to work for yourself, freelancing or launching a business you’ve always dreamed of, you may even find an outlet for a passion you’ll continue to enjoy after retiring from your day job.
If you go the self-employed route for your side job, check whether you’re eligible for a qualified business income deduction on your taxes. You should talk with a tax professional about what amount of money you should plan to set aside for taxes and how to report your income from multiple sources.
Take inventory of your home
There’s no better time to clean house and get rid of possessions you no longer need. If you’re thinking of downsizing in the future, it might be smart to sell items you wouldn’t want to take with you to your next home. Many retirees wish they started downsizing belongings well in advance of a move: consider starting now.
Renting out some of your space is another viable option to generate extra cash. Admittedly, taking on a tenant during the coronavirus pandemic comes with additional precautions and challenges. Make sure to read up on legal obligations as a landlord before finding a tenant, including maintenance services you need to offer and eviction processes if necessary.
Ramp Up Your Savings
Along with maximizing your income, it’s crucial to commit to saving as much as you can. Ideally, you’d be saving a large percentage of your income and meeting contribution limits for your retirement accounts, maybe even saving 30% or more. If that’s out of reach, set the highest savings percentage you can while keeping up with present needs, and commit to putting all additional windfalls straight into your savings account.
This is an important time to review your budget. What will your retirement income be like? How much do you spend each month now? The more you can reduce or cut living expenses today to fit your financial situation after retirement, the easier the transition will be (and the more you can set aside to save).
How Can I Build My Wealth at 50?
As we’ve mentioned, the best ways to save for retirement in your 50s involves careful strategy, not simply saving extra cash. Build wealth for retirement by using your money thoughtfully.
Maximize your employer match
If you have a 401(k) or similar retirement plan with a company match, contribute enough to receive the full match benefit available. If you can, contribute the highest amount allowed into your 401(k). You might not get a full match on every percent of your salary, but even unmatched dollars have the chance to build your nest egg and generate compound earnings.
Everyone’s 401(k) will look different based on their company’s retirement plan offerings, company match, and the person’s individual contribution history. As a rule of thumb, you’d ideally have roughly 5 years’ worth of your annual salary set aside by 50. But believe it or not, even if you’re starting from zero, time still is on your side! The rule of 72 is a shortcut formula that helps estimate how long it would take for your investments to double based on a given annual rate of return. At a 7% rate of return, any money you save at age 50 is expected to double by the time you turn 60 years old.
Play catch-up with an IRA
An IRA or Roth IRA can serve as an additional source of retirement savings. Multiple forms of retirement savings plans, including IRAs and 401(k) plans, also allow catch-up contributions for people aged 50 and over. That means you can put more money into the account than younger people.
Traditional IRA and Roth IRA plans come with different tax specifications (essentially, whether you fund the account with pre-tax or post-tax dollars). Evaluate with the help of a qualified tax professional or financial planner to decide which one would be best for your individual situation.
Yes, we did recommend you try to cut down on expenses. But in some cases, an expenditure can be seriously worth it. Disability insurance or long-term care insurance can help protect you and your loved ones against unexpected costs.
Disability insurance helps replace a portion of your salary if you acquire a disability that doesn’t let you continue your job. Long-term care insurance can help fund your care if you need to move into a nursing home or similar facility, or if you require professional care in your home.
Make a Retirement Plan That Fits Your Lifestyle
If you haven’t set out a concrete plan for life in retirement, now’s the time! Even if you had a plan, falling short of savings goals might be a signal that you need to reconsider options that fit your current situation better.
After you’ve taken steps toward saving, calculate your expected Social Security benefits and use a retirement calculator to get a sense of your projected savings. You’ll want to wait until you’ve taken a few steps and made a little progress before plugging in numbers. The idea is to celebrate the efforts you’ve made and built a reasonable sense of retirement life. Running calculations before you’ve taken some action can lead to an unproductive loop of anxiety over whether you’ll be able to do enough.
We believe you can! Start saving today and don’t dwell on the past. If your progress to-date still predicts your final retirement savings total will be low, you’ve got more than a decade to revise your plans. A more substantial next step might make sense to consider:
- Downsize your home: You may not need as much space, and you can look for a place with lower expenses.
- Consider putting your home equity to work: If you’re not quite ready to downsize, a Home Value Investment is one way to cash out on a portion of your equity while continuing to live in your home.
- Think about working part-time in retirement: Working a part-time schedule can keep some money coming in, and some people enjoy keeping some structure before leaving work entirely.
Saving for retirement at 50 is challenging, but by taking action now and concentrating on highest-value efforts, you can still have enough time to reach financial independence and feel prepared for full retirement.