Oops! I Forgot to Save for Retirement!

Here at The Motley Fool, we talk a lot about how to become wealthy, how to stay that way, and how to provide for your golden years. But awhile back, I took a different tack, and jotted down a few thoughts on how you might instead -- should you be so inclined -- ruin your retirement.

Judging from the number of recommendations, this column was pretty well received. But one comment from a reader really grabbed my attention: charukjamie noted that "there are so many of us that did start late in investing, why don't you do more stories on ways to help us 50 and over. ... What about people with less time before retirement? Thanks. Let's hear it."

And I have to tell you, folks -- that comment really got me to thinking. Personally, I've been saving for retirement since my first job stocking shelves at the local "Super Thrift" (an aptly named supermarket in retrospect) at age 16. But what if I hadn't? What if the thought of saving for retirement just plumb slipped my mind, and I was sitting here, staring at a computer screen at, say, age 55, wondering what in heaven's name I am to do?

Why age 55?
Hint: I didn't pick the number out of a hat. The Employee Benefit Research Institute (EBRI) recently polled soon-to-be-retirees age 55 and older, and learned that 30% of them had less than $10,000 tucked away for retirement. Nearly half have less than $50,000. Across the workforce, fewer than one in eight Americans is "very confident" that they've saved enough to retire well.

Considering the size of the problem, I agree with charukjamie that it's high time someone laid out a roadmap for those 55 and older. A plan for how to get from "here" to "there" with enough money laid away to enjoy the arrival. So who wants to give it a whirl?

No volunteers? OK, then I'll do it.
A few weeks back, I described one method of ensuring a comfortable retirement. Putting myself in the shoes of an average 55-year-old retiree, I demonstrated how postponing retirement by just a few years could dramatically increase your Social Security check once you do retire. I won't beat a dead horse by going into detail here; the upshot is this:

If you can postpone retirement from the "early" age of 62 to a hypothetical 70, you can:

• nearly double your annual payout from SSA, netting as much as $120,000 in "bonus cash" from the government over your lifetime,
• still collect at least as much money from SSA over the course of your lifetime, as you would have if you retired at age 62 (and perhaps a whole lot more),
• and to top it all off, use the eight additional years in the workforce to shore up your finances.

The roadmap
How do you do it? Well for starters, you'll be collecting a paycheck for those eight years. If you make, say, $60K a year, that would give you $480,000 in extra income to work with. By postponing R-Day, you've brought yourself nearly half a million closer to ensuring you can afford to retire. You've also pushed back the day of reckoning from seven years to 15.

T minus 15 years and counting
Now you need to make the most of the extra money -- and the extra time. According to the Associated Press, Americans are saving 6.9% of their income on average these days. That's a good start. On a $60,000 salary, it works out to $4,140 a year. But if you've fallen behind on your saving efforts in the past, it still might not cut it. You're in the home stretch now, and need to kick your saving into hi-gear. Can you do 10.9%? 15.9%?

Saving 15.9% ($9,540) a year works out to just $795 a month -- probably less than your mortgage. It's almost certainly less than you shelled out for the kids when they were partying it up in college. Don't you deserve to spend at least as much on yourself?

"Yeah, but money's kinda tight right now ..."
I understand. But it's going to get a whole lot tighter when you reach retirement age and find yourself penniless and dependent upon the kindness of bureaucrats. Plus, saving that extra dough may be easier than you think.

For example, "saving" $795 for tomorrow doesn't mean spending $795 less today. When you put money away in an employer-sponsored, tax-deductible retirement plan such as a 401(k), every dollar you deposit reduces your income tax. If you are in the 25% tax bracket, then "saving" $795 for tomorrow actually only costs you about $600 today.

Or even less!
Speaking of 401(k)s, many employers will match the contributions you make to your account. Basically, they give you "free money" to encourage you to save. A 3% match is pretty standard, and on a $60,000 salary, that's another $150 a month that you don't pay, yet can "save" anyway. Result: Saving $795 a month could cost you as little as $450 out-of-pocket.

And if you're still not convinced, then let me give you a final nudge: If you can tuck away $795 a month, and do so diligently over the full 15 years between now and age 70, you should be able to top off your nest egg with another $345,054 -- and even assuming a 3% inflation rate, that's still a cool $258,246 in post-inflation, 2009 dollars.

This is also assuming you earn the average annual rate of return for the S&P 500 -- 10.5%. If you invest in individual stocks, the occasional bad pick ...

...could reduce your returns. On the other hand, a handful of high-quality, high-performance stocks such as...

... could give your portfolio a mighty boost. (Incidentally, the first three of these high performers are recommendations of various Motley Fool newsletters.)

The Foolish takeaway
So let's sum up. Ten minutes ago, before reading this column, you were age 55, and staring at a retirement just seven years away. Now, for an extra eight years in the work force, you can increase your nest egg by:

• Postponing retirement to take full advantage of the Social Security Administration's payout formulas -- $120,000 extra.
• Working eight more years to earn a salary -- adding whatever you can save out of $480,000.
• Investing well enough to earn an additional $260,000.

How's that for a plan?

Of course, if you could use more help in planning your retirement, the friendly Fools over at Motley Fool Rule Your Retirement will be glad to help out. Why, they're even offering free trials of the service right now -- and you can claim one at the touch of a button. It doesn't get any easier than that.

Fool contributor Rich Smith has no position in any company mentioned in this article, but as mentioned above, NetEase.com is a Motley Fool Rule Breakers selection, while both Netflix and Whole Foods Market are Motley Fool Stock Advisor picks. The Motley Fool has a disclosure policy.