How to Start Saving for Retirement at Age 50

Everyone knows the time to start saving for retirement is when you are young, but very few actually do. In fact, for those over the age of 40, a recent survey shows that their biggest regret regarding retirement is not starting to save early enough. 

What about those who have not saved at all? They make up around 25% of the U.S. population, and they are not necessarily the youngest among us. These days, the average balance in a typical 50-year-old's retirement savings account is a measly $43,797 – despite the fact that many baby boomers believe that they need approximately $800,000 in order to retire.

If you are a young boomer with no retirement savings to speak of, don't despair. Better to begin late than not at all, and there are a few advantages to being 50 that can help you catch up a bit. Here are a few tips to help you get started.

Come up with a plan to manage your finances
Educating yourself about financial issues is an absolute must for retirement planning, and a major reason many people can't save is because they simply don't understand how to manage money. According to the National Foundation for Credit Counseling, the primary reason clients sought their help was not due to a lack of income, but problems managing debt, and maintaining a budget. 

Be prepared to cut back in order to save more
A recent Merrill Edge survey found that, although 61% of upscale baby boomers are worried about not having enough money to last through their retirement, very few are willing to sacrifice on expenses like dining out, entertainment or vacations in order to save more.

Even if these affluent Americans won $1 million, only 19% said they would put the funds toward retirement, and a mere 32% said they would opt to save or invest the windfall.

Don't make that mistake – particularly when you will be trying to play catch-up with your retirement savings. Pack a lunch, take day trips, rent a movie rather than going to the theatre. Ten years from now, you'll be glad you did.

Take advantage of IRA and HSA accounts
If you haven't already done so, open up an Individual Retirement Account, and put the maximum amount away each year. If you opt for a traditional IRA, you can deduct your contributions from your earnings at tax time; a Roth IRA does not allow for this, but qualified withdrawals will be tax-free.

 If you are 50 years old, you can put an extra $1,000 annually into this account, for a total of $6,500 – as can your spouse.

Health Savings Accounts are another great savings vehicle, if you happen to have a high deductible health plan – which many older Americans do. For plans that qualify, you may contribute $3,250 yearly to an HSA as an individual, while families can sock away $6,450. Once you reach age 55, you will be able to add another $1,000 annually. As long as you use the funds for qualified health care expenses, you will not pay tax on the withdrawals.

These contributions are also tax deductible, and the money in the account can be rolled over from year to year if it isn't used. You can even use the money for expenses other than those that are health-related, once you reach age 65 – though you will have to pay income tax on those disbursements.

Getting serious about retirement planning at age 50 isn't optimal, but it certainly beats the alternative: facing retirement with no plan at all. It will take some due diligence and willpower, but sticking to a plan for the next 15 to 20 years will put you firmly on the path to retirement security.

How to get even more income during retirement
Social Security also plays a key role in your financial security, but it’s not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

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Comments from our Foolish Readers

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  • Report this Comment On June 01, 2014, at 3:13 PM, GetReal wrote:

    I have a little advice for those trying to catch up. Don't be so desperate as to fall for those get rich quick schemes that target the naïve, the greedy, and the desperate. I have had to bail out a few family members who fell into such traps before. Eventually, I realized they had other issues dealing with prudent financial planning and had to cut them off to protect myself...sad. It's not too late to try to catch up at 50, but it's likely too late to build a significant retirement savings portfolio, let alone get rich. btw: I started my long-term financial planning when I was 25. I have seen all kinds of mistakes made by those who insist on trying to get rich quick...seldom works without personal capital and no debt.

  • Report this Comment On June 01, 2014, at 6:49 PM, herky46q wrote:

    Saving $6,500 per year in an IRA is not going to amount to much in 10-15 years. Some staffer needs to write an article on how the nonsavers are going to survive when they can't work anymore and have only Social Security as a source of income.

  • Report this Comment On June 02, 2014, at 3:11 PM, PennLin wrote:

    Because I am still 20+ years away from retirement, I am focused on my savings, and I am determined not to be left uncomfortable in my golden years. I also am not moving to Vietnam just to survive. After a thorough review earlier this year, these are the best tricks I found for putting away money, for my personal situation anyway.

    1. I now max out my match for my 401K by putting away the maximum amount (5% for me) that my employer will pay into the plan as a match. It is free money and I was dumb not to do it before.

    2. I found my biggest expense was driving. I cut that expense in half by buying a used Honda Civic ($13k), got a cheap insurance policy from 4AutoInsuranceQuote ($25/month), and started using the Waze and GasBuddy apps to save on gas (cut my gas bill in half).

    3. I'm working on developing multiple revenue streams. Some ideas I have - Do contract work. Start a business on the side. Invest in a business as a silent partner. Raise chickens, breed dogs or grow apples. Build websites. Buy and sell antiques. Acquire rental property. Sell something that generates residual income. Learn to play the currency markets or trade stocks. Basically do whatever I can to generate income from multiple sources.

    4. I need life insurance to protect my 2 daughters, but I ditched a $300 a month whole life policy for a policy from Life Ant and now I only spend $25 a month. I save the difference to my Roth IRA. (If you are unfamiliar with this concept and want to learn more watch Suzey Orman or Dave Ramsey sometime.)

    5. I cut way back on eating out. No more expensive resturants. No more fast food. No more coffee. I am having a year of putting away money hard, and food was a huge portion of my budget. I save about an extra $100 a week now easily, and eat healthier and better. Ditto if you spend a lot of money in bars.

    If I plan on having a full savings account in retirement I have to make good decisions.

  • Report this Comment On June 03, 2014, at 4:45 PM, MSWeaver wrote:

    Another good option is to look at self-directed IRAs. With a passive custodian like Equity Trust Company, you can actually direct the funds as you see fit and invest in options outside of the stock market. It might be useful if Yahoo! commented more on self-directed IRAs as a viable vehicle for increasing diversity in your retirement portfolio.

  • Report this Comment On June 12, 2014, at 5:15 PM, ArchStanton6 wrote:

    "Saving $6,500 per year in an IRA is not going to amount to much in 10-15 years."

    $6500 per year at an 8% return will give you $176,000 tax free dollars in 15 years (assuming it's in a Roth). That alone may not be enough to retire, but I certainly wouldn't call it "not much".

    Keep it up for another 5 (which you're probably going to have to do anyway if you haven't saved anything) and you're looking at about $300k.

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