I Have No Retirement Savings. Now What?

Q: I’m 50 years old and haven’t start saving for retirement yet. What are some retirement catch-up strategies? Should I change my lifestyle dramatically now? What about how I approach my 401(k) or IRA? Are there other investment accounts I can take advantage of? I’m hoping it isn’t too late for me to retire comfortably.

Don’t worry just yet. Remember, you still have time.

“It’s never too early or too late to start saving,” says Katharine Perry, Associate Financial Consultant at Fort Pitt Capital Group in Pittsburgh. “Depending on your lifestyle, living comfortably in retirement may be easier — or more challenging — to achieve.”

401(k)s and IRAs

How you approach your 401(k) or IRA is a major piece of the retirement puzzle.

“Maximize any company retirement plan that is offered,” Perry explains. “That means contributing the most to that plan to get the company match — and then some.” The contribution limit for 2019 is $19,000 per year into a 401(k) plan. If you’re 50 or over, you can contribute an additional $6,000. For 2019, the IRA contribution limits are $6,000, with an additional catch-up of $1,000 allowed if you’re over age 50.

Another major thing to keep top of mind?

“Pay yourself first,” says Kathleen A. Grace, a Certified Financial Planner, managing director of United Capital and author of “Prince Not So Charming: Cinderella’s Guide to Financial Independence.” This means maximizing your annual contributions. By starting as early as possible and taking advantage of the compounding effect (the time value of money), you have a greater chance of having enough to last through retirement.”

Taking advantage of employer matching is also key.

Contribute as much as possible to your company’s 401(k) or retirement plan — at least to the point of meeting the matching number, Grace suggests. When faced with the choice between an IRA and 401(k), the most important factors to consider are which option has an employer match, allows you to defer the most, has the lowest expenses, and offers the best investment selection, she says.

Other Investment Options

There are other options outside of the traditional 401(k)s or IRAs. Grace suggests utilizing a Health Savings Account (HSA) to help sock away extra cash.

“Many high deductible health insurance plans offer a Health Savings Account (HSA),” Grace says. “This is a brilliant way to sock away additional money (up to $3,450 for an individual annually), while also helping to pay for the deductible portion of your medical costs. (There are) three great benefits: the money goes into the account tax-free, you can invest it to grow within the account, and it is tax-free on withdrawals for qualified unreimbursed medical costs, including deductibles. You can even rollover any unused funds, and the big bonus is that, at age 65, you are allowed to withdraw for non-medical expenses without a penalty.”

Should I Change My Lifestyle?

In a word, yes.

“Your retirement situation is not going to improve until you take control of it,” says Jane DeLashmutt O’Mara, a Certified Financial Planner and portfolio manager with FBB Capital Partners in Bethesda, Maryland. Assess your monthly spending habits to see where you can make cuts. If you have an idea of what income you’ll be living on in retirement, try living within that budget for a month or two to get a realistic sense of what it will be like.

Consider working longer, shrinking your expenses, or downsizing your home, she says. Two other points to keep in mind when planning your retirement budget: “Don’t forget about medical expenses, and don’t assume that you will spend less in retirement.”

What About Social Security?

Relying on Social Security isn’t a good idea, experts say.

“Slightly more than half of women 65 and older depend on Social Security for three-quarters of their income, and further the majority of Americans over age 65 living below the poverty line are women,” Grace says. “And given the cost of living, it isn’t a good idea to rely on living off Social Security.”

She points out that the poverty line for a one-person household in the U.S. is $12,060 in annual income, and the average Social Security recipient receives just $16,300 per year.

Perry echoes this sentiment.

“Typically retirees cannot live on just Social Security alone,” she notes. “Plus, there are studies and news reports that have come out recently that show the benefit amounts decreasing over the next few years due to underfunding. This means you may not get 100 percent of the benefit that you qualify for anyway. Self-funding [your retirement] as much as you can is the way to go.”

So, is it simply too late to retire comfortably? Not so fast.

“It depends on your definition of ‘comfortable,’” Grace notes. “To some, retiring in comfort means having the financial ability to travel frequently in luxury. To others, it simply means meeting their living expenses without running out of money. It really means: ‘Am I going to be OK?’”

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