55 and haven’t saved a dime? Yikes

By Liz Pulliam Weston

If you’re in your 50s and haven’t saved for retirement, you know you’re in trouble.

You’ve also got company. More than one out of four workers (28%) age 55 and older said they had less than $10,000 saved, according to the most recent Retirement Confidence Survey by the Employee Benefit Research Institute.

There’s no sugarcoating the situation: Your late start is going to cost you. But it’s still possible to cobble together a decent retirement, even if it looks different from what you might have originally planned.

Here’s what you need to do now:

Run the numbers

Finance expert Roger Ibbotson has done the math, as I wrote in “Your magic number for retirement,” and says people who start saving for retirement after age 35 face increasingly strong headwinds. (You can try the magic-number calculator in the right-hand column of this page as well.)

To have enough to retire at 65, late starters must put aside huge chunks of their income. The older you are and the more you make, the more you’d have to save to catch up if you want to maintain something like your current standard of living and be reasonably assured you won’t run out of money.

At 55, for example:

• Someone who earns $40,000 a year would need to put aside 27% of her income to retire at 65.

• Someone who earns $60,000 should contribute nearly 33%.

• Someone who earns $80,000 would have to save nearly 37%.

• Someone who makes $100,000 would have to shovel in 40%.

Clearly, few people will be able to pull off savings rates anywhere close to those levels.

But not all is lost.

You can use the MSN Money Retirement Planner to fiddle with some of the assumptions that can make a big difference in how much you need to save. Working longer, for example, can make a big difference, as can living on less money in retirement (more on that in a moment). Speaking of which:

70 is the new 65

A few more years in the workplace will benefit you in three ways:

• You’ll earn more money to contribute to your retirement funds.

• Your nest egg will have longer to grow before it’s tapped.

• Your retirement will be shorter.

Yeah, that last one is pretty grim. Deal with it.

Delaying retirement until age 70 might reduce your required contributions to 15% to 20% of your gross income rather than 30% or more. That’s still a big chunk of change, but it might be doable if you get serious about trimming expenses.

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You’ll help yourself even if you just cut down to part-time employment rather than giving up work entirely. Every $5,000 you earn means you need $100,000 less in assets, financial planner Ross Levin says, assuming you’ll tap 5% of your nest egg annually in retirement.

Besides, you won’t be alone in working longer. AARP tells us that two-thirds of baby boomers plan to work past traditional retirement age.

Don’t underestimate Social Security

If the reason you haven’t saved is that you don’t make much, you may be pleasantly surprised at how helpful your future Social Security check will be. It probably won’t pay all your bills in retirement unless you really cut costs, but it could replace 25% or more of your current income. The MSN Money Retirement Planner can give you an estimate of how much to expect, or you can check the Social Security statement you get in the mail about three months before your birthday.

Isn’t it dumb to rely on Social Security, you ask? Well, sure, if you’re young. By 2041, Social Security is expected to have enough money to pay only 75 cents for every dollar in benefits promised to workers.

Video on MSN Money

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But you’ll be in your late 80s by that point, long since retired (we hope) and among the least vulnerable to benefit cuts. Congress is much more likely to trim future benefits for young and well-off workers than it is to snatch checks away from vulnerable old folks.

“There will be Social Security reform, but it will be things like (removing) the cap on earnings and taxing at a higher rate,” says Levin, who works for Accredited Investors, a financial-planning company in Edina, Minn. “You can’t pull the rug out from under” elderly people already receiving benefits.

Get brutal

Retirement savings must become your priority, period. Everything else has to take a back seat.

That will be tough to hear if you’ve got kids heading for college or elderly parents you want to support. But college students can get loans, and your parents may qualify for all kinds of benefits (start with the Eldercare Locator and check out GovBenefits.gov as well).

If you’ve been the go-to family member when others run into financial trouble, it’s time to shut down the Bank of You. You can read “Should parents bail out their kids?” and “Should you bail out spendthrift parents?” for generation-specific advice, or just head straight to “How to say no to anything — or anyone.”

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