Dear Penny: I’m 54 With No Retirement Savings. How Do I Get Started?

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Dear Penny,

I just turned 54. I have never had any kind of retirement plan aside from saving money where I could. I have about $30,000 lying in a savings account that’s really doing nothing.

Any suggestions would be great.


Dear E.,

Investment firms produce fancy charts that claim to tell you how much you should have saved at any given age. According to the charts, a person in their mid-50s should have anywhere from five to eight times their annual earnings in a retirement account.

But chartland is a perfect world. It’s one where we all start saving for retirement at age 22, where our wages and the stock market keep growing, and where we always have access to a 401(k) with an employer match.

Then, there’s the real world.

A 2016 report from the Government Accountability Office found that 29% of households headed by someone over 55 had no retirement savings and no defined-benefit retirement plan, such as a pension.

So your predicament is common, unfortunately. But you still have options that can make your retirement years a lot more comfortable.

Let’s start with the obvious: If you have access to a 401(k), enrolling in your employer’s plan and taking advantage of any match is a must. You can contribute up to $25,000 in 2019 since you’re over 50; for workers under 50, the limit is $19,000.

But let’s be real: A lot of people aren’t saving for retirement because they don’t have access to an employer-sponsored plan.

Since you have $30,000 in your savings account, I suggest opening a Roth IRA stat. (Seriously, like as soon as you finish this column.)

You can open and fund a Roth IRA to the max if you have taxable income that doesn’t exceed $122,000 a year, or $193,000 if you’re married. You can easily open one online. Since it sounds like you’re new to investing, consider using a robo-adviser, which will select investments for you based on your goals.

Start by investing $7,000 in your account, which is the 2019 maximum amount someone over 50 can contribute to an IRA. Then make it a priority to fund it to the max every year.

If you contribute $7,000 now and then continue to invest $7,000 until you reach age 70, you’d have nearly $200,000 saved, assuming a 6% average annual rate of return. It certainly won’t buy you a cushy retirement, but it will make things easier.

The great thing about a Roth IRA is that it’s funded using money you’ve already paid taxes on, so you won’t owe taxes when you withdraw it later on.

So now that leaves you with $23,000. You should leave about three months’ living expenses set aside in savings for emergencies.

If you have money left over beyond that, using it to pay off debt is one of the best investments you can make. Your retirement will be a lot more comfortable without a mortgage or consumer debt.

But if you’re debt-free, you could open a taxable investment account to accrue more retirement savings.

You should also plan to wait as long as possible to take Social Security. If you take Social Security at 62, your benefit will be 30% lower than if you can wait until you’re 67.

Ultimately, when you delay saving for retirement, you should plan to work longer and live on less. But you do have options for building a nest egg, even when you get a late start.

Robin Hartill is a senior editor at The Penny Hoarder and the voice behind Dear Penny. Send your questions about saving for retirement to [email protected].