Saving for Retirement When You Have $0 at age 50

What should you do if you're starting with $0 save for retirement and you're age 50? Stay with me. Before recording this video, I actually had to do some research and look up the numbers of Americans who at age 50 have nothing save for retirement. And I was quite surprised. 20%, 20%, that's one out of five, have nothing save for retirement at age 50. And when you're age 50, you are starting to get in the wheelhouse of retirement. And it's a very important decade that you need to take ample advantage of whether you've started saving for retirement or whether you haven't saved a penny. So what would I do as a financial advisor or what would I advise to an individual who I was encountering who had nothing saved at age 50 for retirement? First things first, I would have a conversation with the individual. There's a lot of reasons why people have nothing saved at age 50 for retirement. It may be life circumstances, it may be that they just never got around to it. I've talked to some people that it's just not a priority. They just don't see it as something that they need to do. They have a manana attitude or they think they're not going to live much longer than their 50s or they think that social security will be able to cover them. And it's really hard to combat that attitude when someone has it in their mind that it's just something that they don't need to do. So the first thing is I would make sure that the person actually wants to save for retirement if they've saved nothing at age 50. Next thing I would say is that pretty much retirement, wealth building, saving for a home, any sort of long-term financial goal is time plus compounding interest plus money. And if you're short on any of those factors in that equation, it's just not going to happen. At age 50, you're pretty much short on time because you missed prime compound earning years. And so you have to make up with money and you have to make up with good returns in the market. Now we can't control the market. We don't know what the next market cycle will bring us, but you can control how much money you are saving for retirement. And you can take the most important step. And the most important step in this whole process, believe it or not, is just getting started. Now, the thing that's very important, and a lot of Americans don't have access to workplace retirement accounts, but automating the process to make it easy, have the money come directly from your paycheck, go directly to your retirement account so that you don't have to think about this process of saving for retirement. So if you have a workplace retirement program, I would immediately reach out to HR and the workplace retirement program, find out about your 401k. And oftentimes when I put people through this step, they realize they've been missing out on cash for decades, for a long time, because they didn't realize that their company provided a 401k match. And they've been missing out on that 5, 6, 7%, however many percent that the company would match them for a very long time. And unfortunately, we cannot go back in time and gather those resources, but we can start here and now collecting those resources. So we set up automatic withdrawal from their paycheck, bare minimum, so that they can maximize the match. Now, in terms of company matches, I've never seen a retirement made through company matches alone, but it helps. Every bit helps. And company matches came into vogue. The 401k came into being, initially it was a deferred compensation plan for highly compensated employees. Then it was co-opted as American's retirement plan as pensions became a thing of the past. And the reason why companies do a company match is largely because they're getting a tax deduction. The government gives the company a tax deduction for doing a match. A lot of people do not participate in the company match or do not optimize the company match. It may be because they don't know that there is a company match, or it may be that they know and they don't care. They just have other priorities with their money. But if you were 50 and you were starting at zero, you basically need all the help you can get at this point. So hopefully your company has a match and you need to start your 401k deductions from your paycheck immediately. Now, only half of Americans have access to a workplace retirement account. The other half are going to rely on something called an IRA, an individual retirement account. Now, the issue with the individual retirement account is that basically you have a maximum of $8,000 a year that you can put into an IRA account, and a company match can't go into an IRA account. There's a few exceptions with that, but those are more exotic forms of IRA, but we're going to just say a plain Jane IRA account is just going to be your contribution, and you are capped at $8,000 a year. Now, $8,000 a year, and I'm going to show you on the computer what the numbers break out to. It's honestly not going to be enough if you're starting at age 50. It's honestly not going to be enough. But at this point, if you're starting at zero and you only have $8,000 a year, or you don't even have $8,000 a year, anything will help. So even if you can't get to a million dollars by time you retire, it can get you something in a retirement account, and you're going to have to make the rest up with Social Security. So look at your workplace, talk to your HR, talk to your benefits team, see what's going on with your workplace employment program, set up automatic withdrawals from your paycheck, and if you don't have one, set up an individual retirement account, an IRA, and try to max it out if you are able to max it out each and every year going forward. I would also say look at your budget, look at your income, look at what you're spending. Is there anything that you can cut? Maybe there's that Netflix subscription that you're not using, or the New York Times subscription, or new cars. If you could hold off on buying a new car, I'm not a huge fan of buying a new car every few years, but if you can hold on to your car for five, six, seven years, and take that money that you were going to put towards a new car payment, and put it into retirement. I've seen people help their retirement picture in that way, or selling an old car. Some people have multiple cars, like I've seen, I've met people, one person with four cars, and many of the other cars are just hobby cars. Can you sell two of your hobby cars, or three of your hobby cars, and use that money to kick-start your retirement savings? Looking at your budget, and seeing where you can trim so that you can put more money in retirement, even if it's just an additional $100 a month, that's $1,200 a year, it'll help you get closer to the goal. At age 50, you should be pretty close to maxing out your earnings. You're earning more money at this point. If you're earning more money at this point, you should be able to put more money away for retirement. The big factor in this is lifestyle creep. You should have more money if you didn't get involved in lifestyle creep. I understand that lifestyle creep happens. I see it all the time to people in their 30s and 40s. By the time they're in their 50s, their lifestyle is pretty extravagant. If you are getting raises, if you are getting promotions, bonuses, et cetera, that is money that should be dedicated towards the goal of retirement. There's no more lifestyle creep at this point. Whatever lifestyle you have now is sufficient. You're not going to go out and buy a new car, or get a vacation, or buy a bigger home, or anything like that. It's what you have in saving for retirement. Whatever excess you get through changes in your employment situation is dedicated for the goal of retirement. Also, reducing lifestyle. This is really hard, especially if you've lived a certain way for 10 or 20 years, because you're accustomed to earning a certain amount of money. If you haven't been putting any retirement money away, let's just say you just haven't gotten around to it, you've basically been living up to the hilt and beyond. There should have been some percentage of your money that was going toward investments or future savings that you just weren't doing for whatever reason. In some ways, you were living beyond your means by taking that money that was meant for the future and putting it into the now. It's just not sustainable. It's just not sustainable. At that point, you have to look at basically backtracking and peeling back your lifestyle to be able to put more money away for retirement. Now, one of the big problems in 50s, that's basically when ageism starts. People who are laid off often have a hard time finding a job at a similar level and a similar income. Things can happen in people's careers in their 50s that are just really hard to recover from. This is why it's so important while you're employed, while you have a job, while you are earning money to cover as much ground as possible because you never know when the ground may come out from underneath. You lose that job, your hours are cut, or something happens, you need to find another job and you just can't find another job at that level and at that income. I'm going to switch over to my computer and we're going to run through the numbers of how much you save per year versus what that would probably equal out to in retirement. Stay with me. Here we are at my computer and we're at the topic of starting to save for retirement at age 50. Now, I don't like seeing people in this situation because I know if they haven't saved anything by age 50 there's usually a story behind it and there could be a multitude of reasons how people end up in this situation. I have heard all situations of how people ended up here but a lot of times it's the person just didn't want to do it or the person just didn't think much about retirement and they have a history of kind of having a manana attitude or putting things off or not thinking about retirement and they come to a financial advisor expecting us to give them a magic solution but the reality of wealth building and the reality of retirement, planning for retirement, it takes time, money, and discipline and if you're lacking in any of those qualities you're probably not going to make it and someone who just didn't want to do it until age 50 probably on some level is lacking on the discipline necessary to make retirement happen so I don't like it when I see people in this situation and it's an indication to me that this person is at serious risk of just not making it in retirement. I'm a decent person so I try even if I can't work with the person as a client I try to let that client walk away or let that person walk away with some information that can help them and get them started and one of the questions I often get is if I put away $250 a month how much will I have at retirement etc etc. Now it's hard to predict because in running this scenario I'm assuming that this person does $250 a month without fail there's no disruption there's no breakage in pattern they do that as long as they have their working career but the reality that is just not the way that people save for retirement some months people may save more some months people may save less if people are promoted or get bonuses they may put more money away they may put less money away there may be a period of time where they decide to stop saving for retirement because they have other things going on it's very rare to get a person that can be that disciplined where they're going to save for 20 years straight and if they sit in my office they have zero saved for retirement at age 50 because they just didn't want to do it they're probably not going to have the discipline to follow through with this program but let's just say this is a special person who something has happened in their lives and they're transforming their thoughts and opinions about money and they are going to have the discipline to follow through so we're going to assume that these people contribute monthly without fail I'm also using historical returns on an 80-20 portfolio based on 86% stock 20% bonds this was found through chat gpt so this is assuming an individual starting at age 50 without a penny to their name save for retirement and they are going to use an 80-20 portfolio that is either in a traditional ira account or in a workplace 401k I'm not including contributions from your employer because the contributions can be anywhere I've seen as low believe it or not I've seen as low as one percent there are there are a few places that have very low contribution limits and it's just the employer couldn't contribute more at that point I've seen as high as 10 percent contribution so I can't really say what your employer will contribute if anything and I'm not going to factor in social security at the moment the average social security is if you don't have a penny saved at age 50 you're probably looking to work until age 70 but we're not going to factor in social security this is just what you save as an individual if you're starting with nothing at age 50 okay so the first thing we're going to look at is $250 a month or $3,000 a year now for someone who's just getting started and may not have much money this may be all that they can do maybe they're working a job that doesn't pay well maybe they're coming out of a really bad situation if they have debts this is difficult because they have to prioritize either debt or saving for retirement it may make sense to go harder and saving for retirement when you see the final numbers than paying off debt but oftentimes if you see someone who has nothing saved at age 50 it's a constellation of financial problems and saving for retirement is one priority among many including saving saving an emergency fund paying off credit card debt or paying off just life debt and personal debt and they have to balance a lot of things sometimes you see it because the person is underemployed maybe something happened they took a big step back in their career but usually it's just there's other competing priorities so let's have the big reveal here okay so if a person does $250 a month or $3,000 a year by the time they're age 70 they're going to have about $165,000 now that isn't a little bit of money that's a decent amount of money but you also have to fast forward inflation 20 years and so when you fast forward inflation 20 years this is going to have approximately half the purchasing power that it has now so this will have the purchasing power of about 80-85,000 dollars and social security let's give this person the average social security of $1,970 a month it's going to be a pretty tight existence assuming that this person is single assuming that this person has no pension assuming that this person doesn't win the lottery or has an inheritance or has a sudden reversal in financial circumstances this is going to be a pretty spare existence and most people don't want to retire into poverty and you may be able to make this stretch five to ten years if you're very parsimonious and you're really on your about your dollars but beyond that it's you're probably not going to have any money left over so this can get you to age 80 after that it's just going to be social security it's going to be a pretty bare existence retirement so for people who can put away $250 a month I would say just get started with the $250 a month just get started but you have to increase how much you are saving for retirement at some point let's say you get a promotion at age 52 this needs to go up considerably let's say you get a bonus at age 51 for the holidays put that into your retirement savings account essentially $3,000 a year or $250 a month long term isn't going to be enough to sustain you in retirement okay so let's look at the next level it's doing $500 a month with $6,000 a year and there's a pretty big step up between $250 a month and $500 a month we're basically doubling this okay let's take a look at the numbers and see how much you'll have saved for retirement okay so you have about $350,000 saved for retirement if you do $500 a month for 20 years straight and this is also assuming you retire at age 70 if you retire at age 67 you'll have a good deal less you're pretty much cornered into working until age 70 and god willing your health will hold up so that you can work at age 70 in today's dollars this is probably 375 I'm sorry this is probably $175,000 it's a nice cushion of money it'll make things a lot more comfortable but it's not foolproof probably this money is going to run out in your early 80s if you have the average social security of $1,970 this is it's not perfect it's not perfect but it's a lot better than saving $250 a month and once again if you get promoted if you get a raise if something changes where you're getting more money or your expenses drop it really should be shoveled in to your retirement savings account so you're not using bonuses and increases in pay to increase your lifestyle at this point you are shoveling everything you can with both hands into retirement you're praying that your health holds up until you can work until 70 and you'll have $350,000 or $175,000 in today's dollars once you count for inflation save for retirement which is much better okay let's kick it up to $9,000 now at $9,000 a year we've already blown past the IRA limit right because the IRA limit is at $8,000 a year so basically the only way you contribute this much is if you have a workplace 401k so let's just take a look at how much you would have at the end of saving for 20 years you would have half a million dollars and if we reverse that for inflation it would be about $250,000 in purchasing power pretty decent and not perfect but you we're starting to get in the wheelhouse the average retirement account today has about $270,000 if you have $250,000 and you have $1,970 in social security with proper money management that money could probably last you until your late 80s before you ran into difficulties and the reality of most Americans today at least in most parts of America you'll probably be dead by your late 80s so now we're starting to get in the wheelhouse of something that makes sense in terms of saving for retirement that's equivalent to $750 a month the average American income or median income is about $60,000 a year saving $750 a month that's pretty steep for most people most people are going to feel that you're going to feel the burn behind that it's really something that you have to do to get to this level it's something you have to do to get to this level bare minimum if I had to beg borrow steal it probably $9,000 would be the contribution limit I would be doing if I didn't have anything saved at $850,000 because $250,000 you can do something with that in retirement you can make a comfortable retirement it's not going to be lavish it's not going to be the big baller lifestyle in retirement but you could pay your bills you could get food you could get medical care you could live somewhere safe and comfortable you could do something and by time the money runs out you'll probably be dead you'll probably be dead let's kick it up a notch and let's say you can do a thousand dollars a month that's $12,000 a year okay $12,000 a year by time you retire you're at $688,000 so this is getting close to having about $350,000 in purchasing power at that time in 20 years in the future that's more than most Americans have today say for retirement you can do something with that maybe you can live in a little better neighborhood you can have some trips you can dine out it still requires a lot of careful money management at this point you can't just kick back and just say the sky's the limit but you can live a pretty good lifestyle but for a lot of Americans especially if you make the median American income of $60,000 a year this is getting into the realm of just not possible now maybe if you're 50 your kids are grown your home is largely paid off your car you have no debt you can start putting these higher amounts away but if you have a mortgage if you have minor children it's going to be tough for many Americans it's going to be tough okay let's look at the next column and this is putting away so at retirement at age 70 you would have $861,000 or about $425,000 this is where things start getting to the level of comfort right if you have $1,970 for retirement coming in from social security $400,000 in a retirement account you don't have a pension you're not married or anything like that you could live and probably have some money left over and do some trips and dining out and things like this to make things comfortable but to be honest most Americans are going to struggle to put away $1,250 a month unless you are a higher income or you are at the median and basically have no debt by time you're age 50 okay and the final column $1,500 a month or $18,000 a year you'll have just north of a million purchasing power 20 years now will be about $500,000 this is where you really start getting into having a really nice retirement now you're probably not going to have a lavish retirement but you'll be able to cover all your expenses and it likely will last your lifetime even if you live a bit longer even if you live until 90 with proper money management you can make this last now one thing I want to point out is this is the assumption that you don't have a pension you don't have a spouse or anything like that pensions and spouse completely changes everything here I know some people with pensions who really haven't saved that much in their retirement account at age 50 and it's because they are counting on their pension it's a dangerous bet to make because if that pension goes under or that pension is underfunded and they can't pay out what they are promising to pay out you really have nothing to fall back on because you haven't really adequately funded a 401k or an IRA account or have people who are married with pensions if they separate or divorce or something happens and they have to give half their pension to their former spouse that's also something I've seen occur that has completely rewritten people's retirement plan very late in their lives this is also assuming that you can work until age 70. I do see a reversal happening we live in a very ageist society and most baby boomers wanted to work past age 62 to 64 but they just couldn't because they were laid off or there was no more work to be had I see that transforming and it's going to take anywhere 15 to 20 years but I think Gen X millennials and Gen Zers are going to have the option of working longer because we're going to need more people in our society to work longer in order to sustain the level of spending the taxation and the social spending on things like social security that we hold near and dear so I'm starting to see it it's very early stage I don't think the baby boomers really benefited from it but there's starting to be a reversal and thinking about older more mature workers and what they can contribute to our society personally I think in 20 years time the average retirement age will have moved up from 67 to 70 anyway and it's going to be the norm and expectation that you work until age 70. Hopefully ageism will have an answer for ageism by that point but you can see what the numbers are here at age 67 and if you're starting with zero at age 50 you really have to conceptualize that 67 as a retirement age doesn't really make sense for you you really have to push it out into age 70 and you see a difference like in the highest column it's about a quarter of a million dollar difference between retiring at 67 versus retiring at 70 and you're going to need that quarter of a million to make ends meet in the future when things are more expensive and the dollar has further devalued and inflation has kicked in. So there you have it what you can do if you're starting at age 50 with zero even if you can only do $50 a month just get started that's often the hardest point. I would try at bare minimum to do $250 a month and really up it as you get promotions raises and bonuses do not inflate your lifestyle lifestyle inflation is over plan on working until age 70 or as long as possible and hope that you don't get caught in the trap of ageism and once again just get started. So tell me what you like tell me what you don't like and if you found this information useful please share and subscribe. Thanks!