Making Up For Lost Time – A Late Starter’s Guide to Saving for Retirement

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The following article is by MPFJ staff writer, Miss T from Prairie Eco-Thrifter. If you want to learn how to live your dream life in a sustainable, healthy, and money savvy way, check out her site here.

Are you in your 40s or 50s and are realizing that you don’t have enough in retirement savings to get you very far? 

Luckily, it’s never too late to save for retirement; so here’s some strategies to help you make up for lost time.

Current Landscape of Retirement Savings

You’re not alone, by the way. A survey conducted in 2011 by the Employee Benefit Research Institute found that more than 60% of workers in their 40s and 50s had less than $50,000 saved or invested for their retirement. Experts claim that even savings in excess of this amount may not be enough to allow people to live out their lives in comfort.

The important thing at this point is not to panic. We tend to make the wrong decisions when we are stressed out, so this has to be avoided at all costs. OK, so you probably should have started some sort of financial plan when you were younger, but you can’t change that now. What you can change is your money management from now; that’s a positive step, getting panicked is not.

You still have time – at least 25 years if you’re in your 40s, 15 years if you’re 50s. With a committed approach, you still have time to save enough to fund your retirement. Your options might be more limited than when you were younger, but there are still effective strategies you can implement. It doesn’t have to take forty years to fund a decent retirement; consider the entrepreneurs who have gone from relative poverty to millionaire in 15 years and retired at age 40.

Creating a Budget

Before you can start to plan how you are going to make up for lost time, you need to know what your current financial position is. This means you need to create a budget, often creatively called a life plan, an income and expense spreadsheet, or some other fancy name by financial advisors who don’t want you to react badly to being told you have to have a budget! A well-designed budget is great wealth-creating tool, but it will need to be updated at least twice every year to stay relevant.

How Much Money Will You Need for Retirement?

So, just how much is enough for retirement? The cynics would say it depends on how long you intend to live!

Of course, to a certain extent, this is true. The other figure that’s needed to crunch the retirement numbers is the age you retire at; at least this one is more under your control!

The popular thinking is that you need 80% of your current income to be able to maintain your lifestyle in retirement. However, if you can reduce this figure, you will take some of the pressure off. Here’s an example of the power of this concept – allowing for a rate of return on investment and savings of 4%, for every dollar you don’t need in retirement, you cut $25 off the amount you have to save. How’s that for incentive for you!

Consider ways you can reduce the amount you’ll need in retirement. Maybe travel is not for you; you probably won’t have the kids to support; you won’t have the same transportation costs; you won’t need to be saving for retirement; you might down-size your home or live in a cheaper area. Finding ways to reduce your retirement spending eases the burden on saving enough while you are still working.

Utilize Tax Favored Investment Accounts to Your Advantage

Playing catch up has been made easier for the over 50s group, due to the increased contributions that are allowed to be made into retirement accounts like IRAs, 401k and other employer sponsored plans. In 2012, the allowable annual contribution to a 401k is up to $22,500 for over 50s; others are restricted to $17,000.

As an example, if you start making the max contribution at 50 years of age and continue for every year until you retire at 65, at a 5% interest rate you would have amassed over $500,000. Any employer-matched contributions are then the icing on the cake!

Working During Retirement? – Another Possibility

Planning to continue working into retirement, even on a part-time basis, is another strategy for making up for lost time. Do your research now, so you can plan for this possibility. It might even be possible to start a small side-business while you are employed. Make enquiries about consultancy work in your current field – your expertise could be sought after. The same example used above, about reducing the amount you need to save for retirement, can also be applied to earnings. If you can come up with a plan to earn around $10,000 a year in retirement, this equates to $250,000 you don’t need to have saved before you retire.

So, now it’s time to stop thinking and stressing about how you are going to make up for lost time and take some action!

Start now to get your financial position down on paper; get those figures out of your head and do the calculations necessary to plan your retirement. Look for where you can cut spending so you can lift your retirement savings. Create a financial plan that will allow you to enjoy your years of retirement.

How about you all? Are you making up for lost time? If so, what is your game plan/strategy?

    ***Photo courtesy of


    1. Pauline @ Reach Financial Independence says:

      If you have only 15 years ahead of you, you should be making some serious cuts! I managed to save enough to stop working in less than 15 years so it can be done but with great frugality. It is hard to deflate your lifestyle though, sell the house the kids grew up in for a smaller condo for example, is a step many wouldn't take. I wouldn't make a plan to work after the age of 65, many people can't do it for health reason.
      My recent post 13 money resolutions for 2013: #12 make a plan!

    2. John S @ Frugal Rules says:

      Seeing numbers like this always concern me at where we're going if so many have so little saved for retirement. I would agree though that starting a budget and looking for ways to maximize tax favored accounts are vital. You can't get back that lost time but you can certainly make a good dent in it.
      My recent post Taking the Plunge: Budgeting and the Entrepreneur

      • Well put John. We shouldn't give up. We can start today to change things for tomorrow.
        My recent post Are You Financially Ready For Kids?

    3. PS Based on what I have read, I think you and your family are doing just fine.
      My recent post Are You Financially Ready For Kids?

    4. studentdebtsurvivor says:

      I've gotten a little later of a start then I would have wanted (I just turned 30), but I think I'll be able to make up for lost time, I also think I'm one of those people who wouldn't be able to fully “retire” because I'd go stir crazy, so working a little part-time gig in retirement actually sounds pretty good to me.
      My recent post Personal Finance is Personal-Butt Out

      • I got started a bit later than I would have liked to as well but things seem to be working out ok now. You can catch up. Like you I think I will always keep busy too. The good thing though is it will be because we want to and not because we need the money.
        My recent post Natural Home Cleaning From Products Found In Your Home

    5. I started early and hit a few road blocks along the road, so I feel like im playing catch up. I like the idea behind working part time forever or at least 70 years old. Working hopefully for my own business will keep me young and quick thinking.
      My recent post Bad Money Habits

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