If you're in your 50s or 60s and only have a small sum tucked away for retirement, it's time to take drastic action. Presumably you don't want to forego having a happy retirement, so you'll need to find an approach that won't require you to work until you're 90 or live on cat food. Fortunately, it's not too late to get your act together and develop some sources of income.
1. Saving mania
Now is the time to pull out all the stops on saving money. Granted, you don't have tons of time for the magic of compounding to help that money grow, but you do have at least a decade or two -- that's enough time to allow some returns to build up, but only if you start saving right away. First, max out your retirement contributions for IRA and 401(k) accounts. Someone age 50 or older may contribute $6,500 per year to IRAs and $60,000 per year to 401(k)s. If you don't have access to a 401(k), then max out your IRA and stick the rest into a standard investment account. You won't get the immediate tax benefits, but at least you've got more capital building up to provide future income.
2. Increase your income
Of course, now you're probably wondering how you could possibly save thousands of dollars when you're living paycheck to paycheck. The answer is to find more income -- and put every penny of the extra money into savings. Some options for increasing your income include asking your boss for a raise, working longer hours, taking a part-time job on the side, holding a garage sale or otherwise disposing of unwanted items for a profit, turning a hobby into a source of income, and so on. Whatever new source of income you find, tuck the money away in savings immediately so you're not tempted to spend it on something else.
3. Postpone your retirement
If you planned to retire at age 65 or 67, consider putting it off a few years longer. Giving your retirement savings just a little longer to grow can make an enormous difference, and waiting until age 70 to claim Social Security benefits will result in a significantly larger monthly benefit check. If your Social Security benefits are higher, you won't need as much income from those underfunded retirement accounts. And every year that you continue to put money into your retirement accounts instead of taking it out will help your long-term financial outlook immensely.
4. Eliminate debt
If you're laboring under a burden of heavy debt, you should make getting rid of that debt a priority. Not only will debt be an extra expense during retirement, but the interest you pay on that debt will require additional income just to keep up with the payments. Pay off high interest rate debt such as credit cards as soon as possible; the interest you pay on credit card debt will be more than enough to cancel out any returns you're getting on your investments. Once you've offloaded the most dangerous debt, consider paying off less expensive debt such as mortgages, car payments, and any remaining student loans as well. Getting rid of those monthly payments will lower your income needs considerably and allow you to live comfortably in retirement on a much lower income.
5. Plan to work in retirement
Obviously, a retirement won't be much of a retirement if you're working full time. However, if you have a part-time job working just a few hours a week, you can add to an income that's not quite enough to meet your needs. Rather than settling for flipping burgers at McDonald's, try to find a part-time job that you will actually enjoy. For example, if you love gardening, consider expanding your garden and selling seeds, plants, produce, and flowers at your local farmers market. The resulting income probably won't be enough to support you all by itself, but it could be enough to supplement the income from a small retirement account. It's not really work if you love doing it, right?
6. Use your house for income
If you own a house, it can potentially be an excellent source of retirement income. You can tap directly into the equity you have stored in your house through a home equity line of credit or, more drastically, a reverse mortgage (but be aware that the latter option comes with some serious drawbacks). You can sell the house outright and move into a cheaper house or an apartment, using the funds from the sale for income. Or you can simply rent out a room and increase your income that way. The latter is a particularly good option if you live in a college town, as students are often desperate for cheap digs.
7. Invest in real estate
When you start saving late, investments such as stocks and bonds have less time to accumulate returns and therefore provide a large base you can tap into for income. However, if you put that money into buying a rental property, you can have a steady stream of income for as long as you can keep tenants in the building. Whether or not this is a viable strategy will depend on your situation and on where you live; consult with your financial planner before making a firm decision to pursue real estate as an investment option.
If you've waited until you're near retirement to start saving, you have a problem but it's not an insurmountable one. Add up your expenses, figure out how much income you'll need to get by in retirement, and then try one or more of the above ideas to reach that income goal. You may have to work a little harder at it than you would if you'd started saving in your 20s, but you still have a chance at a long, happy, and economically secure retirement.
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