Overcoming a Late Start to Saving for Retirement

A reader asks:

Have you ever written anything about getting a late start to saving for retirement? My wife and I are in our early 50s and have very little saved. What do we do?

This reader is definitely not alone in this situation. According to the Employee Benefit Research Institute, around half of all workers age 55 or older have less than $100,000 saved while a third have saved less than $25,000.

It would be nice if everyone started saving money early to take advantage of time and compound interest but I can see how people could fall behind when you consider the typical financial lifecycle: paying off student loans, saving up for a down payment on a house, having children, saving for college and all of the expenses that come along with raising a family.

I’m sure there are plenty of parents who reach the empty nest phase of their life once the kids are out of the house and finally realize they are woefully unprepared for retirement.

Not everyone goes this route, but it seems like there’s always something that gets in the way of saving for your future self.

The good news is you still have some time to figure things out. Here are a few positives for people in this situation:

  • The kids should be out of the house and (hopefully) out of the budget. This means you should be able to funnel the majority of the money you were spending on them into retirement savings. It also means your lifestyle might not have to change as much as you think to hit a reasonable savings target as long as you don’t use those funds elsewhere.
  • There are catch-up provisions on retirement savings vehicles you can take advantage of. The annual contribution limits for 401(k)s and IRAs are $18,000 and $5,500, respectively. But for people 50 or older, those limits jump to $24,000 and $6,500. That’s an extra $7,000 in total that you could be saving on a tax-deferred basis.
  • You should be in your peak earning years.

The biggest issue for most people is turning saving into a habit, but I think the sense of urgency that you get from inching ever closer to retirement age can have a huge impact on this.

The bad news is you’re going to have to save a lot. The good news is it’s not out of the question to build up a reasonable amount of savings in a relatively short amount of time.

Let’s take a look at an example to see how the numbers could potentially work. Let’s say you’re a couple earning $100,000 a year and have nothing saved for retirement at age 50. Not the ideal situation but all is not lost if you’re able to ramp up your savings.

Assuming you keep a steady savings rate but see a 3% rise in salary every year here’s how your ending balances would look after ten years of saving:


And here’s what things look like if you work a little longer and build up your savings for fifteen years:


One more slight change you can make is to increase your savings rate each year by just 1% (so if you start at 10% the next year you bump it up to 11%, then 12% and so on):


A few things stand out from this simple exercise:

  • How much you save will have a much larger impact on your bottom line than your investment returns. Doubling your investment returns resulted in a much smaller bump to your savings than a doubling of your savings rate. For example, 8% returns at a 10% savings rate gave us a smaller balance after ten years ($164,601) than 4% returns at a 20% savings rate ($273,794).
  • Saving more money is something you actually have control over, unlike returns in the financial markets. This is where you should focus your energy, especially since there isn’t nearly as much time to allow the markets to work in your favor. And saving just a little more each year can really help ease into the process.
  • Working longer gives you a huge bang for your buck in a number of different ways. First, and most obvious, it gives you more time to compound and build your savings. But it also helps by deferring spending down your portfolio. If you spend the typical 3-5% of your portfolio in retirement, each year you hold off not only adds value to your savings but reduces the impact of portfolio distributions. And as long as you’re working you may as well hold off on taking social security, which is another way to increase your future spending.

Getting a late start on retirement savings can be a scary prospect, but it’s a position many baby boomers find themselves in today. The simple solutions are:

  • Get the kids off your household budget.
  • Take advantage of tax-deferred retirement savings accounts and catch-up provisions.
  • Worry more about your savings rate than your investment performance.
  • Save a little more each year.
  • Work a little longer.

Each step used individually may not help all that much, but when you add them all up there’s still time to make a difference.

Your future self will thank you.

Further Reading:
The Retirement (Expectations) Crisis


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    How much money do I need to live off dividends?

    • Ben

      Better question is how much money do you require for spending purposes? Then you can back into the answer…

      • newguy40

        Exactly. 1MM portfolio with 3.5% yield = 35K per year cash.

  • Expenses must be cut and significantly. If one hasn’t saved money by age 50, then one probably needs to apply serious effort to redefining how one defines the “good life” to pave the way to reducing costs. This book may help: https://www.amazon.com/Your-Money-Life-Transforming-Relationship/dp/0143115766

    Nick de Peyster

  • ciwood

    You can do it!!!!

    I was broke at 46 in 1995. New Phd at a Louisiana University Business School. Starting Salary at $54,000 and ending salary at $91,000. My wife taught part time at a private school and earned about 20k from 1998-2004.
    1. My college put about 6% in a defined contribution plan(not a pension) that I matched.
    2. I maxed out my 403b each year from 1998 until 2015.
    3. I also maxed my Roth IRA contribution and that of my spouse.

    We started with a $3,000/month take home budget that moved up to $4,000/month take home as my salary increased until 2016 when I retired. My net worth today is $1,530,000 consisting of 1.1 million in tax deferred accounts, 350k in Roth Ira, and 80k in taxable accounts.

    In my spreadsheet, I use 3% return that enables me to draw 5k-6k each month in after tax money. I am also rolling 20k per year into my Roth Ira to reduce future tax liabilities and to prepare for living to 100..

    • Ben

      Very cool. Good for you. Thanks for sharing. Nice to hear success stories like this.

    • Rid H

      Good story and thanks for sharing. We are a bit ahead in the savings at 39 years old and with a 19 month old and hopefully another one in the next year or so. It is scary thinking how we will be close to retire when he (or them) will be ready to move on their own. But as your story shows, a diligent commitment to savings does win the day

  • UofODuck

    I think you’ve identified the 2 most critical savings elements: savings rate and time. Asset allocation and return are not unimportant, but they don’t mean much if you have not gotten over the first hurdle of actually saving something. Unfortunately, the discipline and delayed gratification required to compensate for a late start in saving is huge. This effort is further complicated by the fact that the greatest progress in savings occurs in the latter stages of the savings/investment cycle. As a result, too many people get discouraged in the early stages as they fail to understand what the compound growth curve will look like over time.