Invest Retirement

I Have No Retirement Savings. Now What?

Rachel Cautero  |  June 29, 2020

There are certain retirement “catch-up” strategies that you can take advantage of to jumpstart your savings, even if you're late to the game.


Q: I’m 50 years old and haven’t start saving for retirement yet. What are some retirement catch-up strategies? Should I change my lifestyle dramatically now? What about how I approach my 401(k) or IRA? Are there other investment accounts I can take advantage of? I’m hoping it isn’t too late for me to retire comfortably.

First of all, you’re not alone. Around 25% of U.S. adults have no retirement savings, according to the Federal Reserve.

Next, don’t worry just yet. You still have time to catch up, even if you have no retirement savings at 65. “It’s never too early or too late to start saving,” says Katharine Perry, Associate Financial Consultant at Fort Pitt Capital Group in Pittsburgh. How easy or challenging it will be to get where you want to be depends how you want to live in retirement.

401(k)s and IRAs

How you approach your 401(k) or IRA is a major piece of the retirement puzzle.

The first step: “Maximize any company retirement plan that is offered,” Perry says. “That means contributing the most to that plan to get the company match — and then some.” The contribution limit for 2020 is $19,500 per year into a 401(k) plan. If you’re 50 or over, you can contribute an additional $6,000. For 2020, the IRA contribution limits are $6,000, with an additional catch-up of $1,000 allowed if you’re over age 50.

Those catch-up provisions if you are over age 50 are key, especially if you are starting with no retirement savings at all: That’s not only more money you’re allowed to invest, but each dollar you contribution to a regular 401(k) or a traditional IRA lowers your taxable income for the year. That’s bonus savings!

Another major thing to keep top of mind? “Pay yourself first,” says Kathleen A. Grace, a Certified Financial Planner, managing director of United Capital and author of “Prince Not So Charming: Cinderella’s Guide to Financial Independence.”This means maximizing your annual contributions. By starting as early as possible and taking advantage of the compounding effect (the time value of money), you have a greater chance of having enough to last through retirement.”

Taking advantage of employer matching is also key. Contribute as much as possible to your company’s 401(k) or retirement plan — at least to the point of meeting the matching number. When faced with the choice between an IRA and 401(k), the most important factors to consider are which option has an employer match, allows you to defer the most, has the lowest expenses, and offers the best investment selection, she says.

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Other Investment Options

There are other options outside of the traditional 401(k)s or IRAs. Grace suggests utilizing a Health Savings Account (HSA) to help sock away extra cash while also helping to pay for the deductible portion of your medical costs.

“Many high deductible health insurance plans offer a Health Savings Account (HSA),” Grace says. Individuals can sock away up to $3,550 in 2020, and families can contribute $7,100. There’s also an annual catch-up contribution of $1,000 if you’re 55 or older. Again, that catch-up provision is extremely helpful if you’re starting from a place where you have no retirement savings.

The benefits of HSAs are:

  • The money you contribute is tax-free (meaning pre-tax).
  • You can invest it to grow within the account.
  • Withdrawals for qualified unreimbursed medical costs (including deductibles) are tax-free.
  • You can rollover any unused funds year to year.
  • The big bonus is that, at age 65, you are allowed to withdraw for non-medical expenses without a penalty.

Annuities are another investment option. Annuities are tax-deferred investments offered by insurance companies. They’re often described as a personal pension,  offering guaranteed monthly income when you need it. This stream of lifetime income, along with Social Security, can be enough to cover a good chunk of your costs in retirement. The world of annuities can be complicated. This annuity explainer  provides some background. Be sure to check out the U.S. Securities and Exchange Commission annuities overview as well.

Should I Change My Lifestyle?

In a word, yes. “Your retirement situation is not going to improve until you take control of it,” says Jane DeLashmutt O’Mara, a Certified Financial Planner and portfolio manager with FBB Capital Partners in Bethesda, Maryland.

Assess your monthly spending habits to see where you can make cuts. If you have an idea of what income you’ll be living on in retirement, try living within that budget for a month or two to get a realistic sense of what it will be like. And, she says, don’t forget about medical expenses, and don’t assume that you will spend less in retirement.

If you can shrink your expenses — downsizing your home or moving to a less expensive area — your money will last longer. Similarly, if you work longer, you’ll have fewer years without a paycheck to cover. Working for more years also can help you delay taking Social Security, which leads us to our next point.

What About Social Security?

Relying solely on Social Security to live off of in retirement isn’t a good idea, experts say. “Slightly more than half of women 65 and older depend on Social Security for three-quarters of their income, and further, the majority of Americans over age 65 living below the poverty line are women,” Grace says.

She points out that the poverty line for a one-person household in the U.S. is $12,060 in annual income, and the average Social Security recipient receives just $16,300 per year.

Perry echoes this sentiment. “Typically retirees cannot live on just Social Security alone,” she notes. Plus, if Social Security benefit amounts decrease, you may not get 100% of what you qualify to get. “Self-funding [your retirement] as much as you can is the way to go.”

So, is it simply too late to retire comfortably if you have no retirement savings yet? “It depends on your definition of ‘comfortable,’” Grace notes. “To some, retiring in comfort means having the financial ability to travel frequently in luxury. To others, it simply means meeting their living expenses without running out of money.”

Think about what you can do to get to a place where you can confidently say, “I’m going to be OK in retirement.” Remember every small move you make from this day forward — saving a little bit more, trimming a few expenses — adds up.

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