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Over 40 With No Retirement Savings? Here’s What To Do

working through retirement

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I’ve been paying attention to retirement savings for a few years now since getting out of debt. I’ve always contributed something to my retirement account, just not very much at times. Now that I’m in the 40 and over club, I really study people and their finances. You’d be amazed how much people share with their eye doctor! I’ve learned lots from people who’ve done well and from people who are behind in one way or another. One thing I do see way too often is that there are lots of people over 40 who have no retirement savings to speak of. Either they never saved spent it on a big expense. Regardless it’s a scary place to be. If you’re over 40 with no retirement savings, this is what I’d recommend. Please remember I’m not a financial professional, just someone who studies ways to retire with a passion because I want to be there someday sooner rather than later.

Don’t Panic

Well, I want you to panic a little. If you’re over 40 and have nothing saved and there is no sort of a pension coming your way, it might not be a fun retirement. Working 35+ years to live like a pauper is not my idea of golden years. You don’t have the luxury of waiting until tomorrow. You also probably don’t need millions of dollars like some retirement calculators might lead you to believe. There are lots of people who live comfortably on $30,000 to $40,000 per year, and you have plenty of time to save that much money.

Start Investing

If you have a 401K or similar plan at work, go sign up! Let’s say you make $50,000 per year. If you contribute $1000 per month for 25 years at 6% interest, you’ll have almost $700,000. Using the 4% rule, that would give you an annual income of $28,000 per year. Although social security has it’s issues, you probably will get something. Currently a person with a 35 year work history of $50,000 per year would get around $1900 per month at age 70. If you continue to work until age 70, you’d have over $970,000 in your 401k. If you can invest more or get a match, the numbers continue to rise. The future is not all black, but early retirement will be tough unless you can find a way to earn lots more  money.

If you don’t have a 401K or are self employed, you’ll have to do it on your own. You can open up an traditional or Roth IRA, SEP IRA, solo 401K, or invest in non-tax deferred assets. I’ve done all of the above, and none of it is hard if you use a low cost brokerage like Fidelity or Vanguard. If you have no idea about what funds to choose, pick a broad index fund, like a total stock market or total bond market index. Remember that you need to earn at least 6% or you’ll have to invest  even more money. Since you aren’t touching this money for at least 25 years, I’d recommend something like an 80/20 percent stock/bond ratio. This might seem risky for your age, but you started late and still have many years to weather the ups and downs.

Where to Find The Money

If you haven’t ever invested in retirement because you live paycheck to paycheck, this is where it has to end. You absolutely have to pay off all consumer debt and buckle down on spending. If you are supporting adult children or saving for college for younger children, that has to end as well. Unless you want your kids to support you in retirement, you have to start taking care of yourself now. That might bring some difficult conversations, but I think we all can agree that it’s better to do it now than later.

Also keep in mind that any money invested in a 401k or Roth IRA has tax advantages. If  you make $50,000 and invest $12,000 into a 401k, you will only be paying income tax on $38,000, so it isn’t as big of a paycheck hit as you might think. Anyone can earn extra money as well, so this is a good time to be thinking about what skills you have that might bring in some side income.

Don’t Compare To the Joneses

Don’t look at what you have or don’t have in retirement compared to the rest of the world. Once you start seeing your balance grow, you might be tempted to lower your contribution because you’re doing better than most people. On the other hand, don’t get discouraged if someone your age has much more than you do. Look at your own situation and stay focused.

Lower Your Housing Costs

The biggest item in most people’s monthly spending is housing. If you are house poor, this might be a good time to reconsider the situation. Downsizing to a smaller house or moving  to a lower cost of living area now or after you stop working would help with retirement savings and/or spending. Would you rather live in a big house in an expensive neighborhood with no money or live somewhere else and be able to enjoy some hobbies or travel? If you can’t have it all, you should choose which is more important.

Things You Can’t Skimp On

You can go without buying a new car, taking expensive vacations, playing golf or paying for your daughter’s wedding.  You can’t go without being prepared. It’s important to start saving for retirement, but don’t start putting all of your money into a 401K until you have a few things squared away.

1)Emergency Fund

I think you need at least 3-6 months worth of basic expenses plus enough to cover your insurance deductible saved up before you start investing. Basic expenses do not include cable and eating out! This doesn’t mean saving $50 a month for years either. You need to start putting your $1000 a month in this account until it’s funded, then go on to the investments. One big emergency could drain your retirement with all the penalties that go with that.

2)Health Insurance

A large medical bill can also derail your retirement. Gambling that you’ll stay healthy is not a good plan.

3)Life Insurance

If you have people who depend on your income and no retirement savings to speak of, you really need to get a term life insurance policy. If you get hit by a bus, where would your family be? Get enough coverage to pay off all your debts with some left over to help your significant other get by until he or she could start earning income.

If you aren’t yet 40, please get started with your retirement savings so this post won’t be necessary. If you are my age or older, it’s time to stop the excuses, valid or not, and start planning a positive future. I could be retired by now if we had avoided debt and  lifestyle inflation. I can’t go back, but I can be even more dedicated going forward. It is possible to have a good retirement, even if you got a late start.

What tips would you give to someone over 40 with no retirement? What holds people back from saving for the future?

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.

28 comments

  1. These are all great tips Kim! I saw this all the time in my brokerage days and it’s honestly one of the things I use to drive me to save as much as we can. I think it comes down to a lot of things, but usually is thinking it will all be “ok” or the feeling that just because it might be a small amount then they shouldn’t start. I’d say to get real about the situation and get started investing asap.

    • The thing about investing is that it seems like such a trivial thing at first, but if you don’t look at it every week, you’ll be surprised how much it starts to add up after a while. I’m sure we will have ups and downs with the stock market, but as long as we keep being consistent, it should all work out in the end.

  2. I’m in no place to give advice to people who are 40+ (though hopefully they find some things useful on my site haha) but I think you covered most of what I would recommend. At 40+ you would hope that the student loan debt is gone so that would free up some flexibility as far as savings. Perhaps you may even have a relatively high income compared to 20 and 30-something “you.” Cut expenses and throw that extra money into retirement savings!

    • If you can minimize lifestyle inflation, you certainly should have more money and less debt by 40. Although, people graduating with 6 figures of student loan debt and a so-so job could easily hit 40 while still carrying loans. I almost did, but it was totally my fault for not being more frugal.

  3. Excellent ideas here, Kim. One thing I am grateful for is that, despite our high amount of debt, we do have a nice retirement cushion. Not as much as we want to have, but we’ve got a good start.

    • I’m thankful every day that somehow we were smart enough to know never to touch our retirement. I have friends who raided their 401k’s to buy a house or some other big purchase. We went into debt, which was dumb, but at least we have always let our retirement keep growing.

  4. Great points Kim! I like the “don’t panic” …but start now and don’t lose sight of it. Here’s hoping nothing decimates our savings before forty, so we can be sitting pretty.

    • I bet you’ll be in good shape because you are already thinking ahead. I wish I’d done more of that.

    • I am on disability but we own our house and he on disability too so we only get about 1600 a month plus three more yrs of child that draws check and 378 a month child support. We have no savings :(. I am paying off the credit cards over the next eight months then taking all my money which is only 804 a month and putting everything I can in a Roth($2500) but don’t know what to do with rest to invest. I thought about doing the online personal business loans where all involved pool their money for less risk with about 8% return. Hope that good ideas… $804 x12=9648 – 2500(Roth)=7148x.0=571 + the 7148=$7719 a yr savings for 2yrs =$15438 plus (2500×2)=$20438 in two yrs saved. Then I can only do $2588x.08=$207+2588=$2795 + $2500 (Roth)=$5295 possible a yr and over 15 yrs that’s $68835 +20438= $89263 when I 65 yr old plus sell house and life insurance policy of $100,000 which might give me something out of the life insurance policy sold;however not much probably. So I will be really poor still I bet but at 65 I might have 5 yrs left so that =$17852/12=$1487 a month plus house money and any life insurance policy I could sell for something. So I not sure if that a good plan and I not considering I cough use Roth monies to invest in stocks right?? I think I will figure out Ormans ( Suzie) ideas

  5. I too like the “don’t panic!” approach. As the saying goes “The best time to plant a tree was 20 years ago, but the next best time is now.”

    • I am such a believer now in compound interest that my daughter already has an IRA. If she’s a brat, I’ll keep it, but otherwise, her nest egg is already started. I think that’s much better than any game or even a car when she is old enough to drive.

  6. “I can’t go back, but I can be even more dedicated going forward. It is possible to have a good retirement, even if you got a late start.” This is exactly the mindset someone in that situation has to have. Yes, you’re behind, so you have to become laser-focused and take action. I agree that you shouldn’t panic because that never helps the situation, but you need to start saving. I fall to the basics, which you covered. Track your spending and cut out the fat. This doesn’t mean you need to eat ramen noodles for the remainder of your life, but almost everyone has some fat that can be cut. Get rid of debt AND figure out what REALLY matters. The biggest waste I see is people spend thousands of dollars on things they think they want but under closer scrutiny, they care little about. (this is either a keeping up with the Joneses issue or mindless emotional spending). If you have authentic goals that you want (like to be able to have an enjoyable retirement) it makes it easier for you to keep your eyes on the prize and say “no” to stuff you would have said “yes” to before. All hope is not lost but you need to take action and regain control over your finaces.

  7. Great tips and very scary to be over 40 with no nest egg. I cant fathom that actually. I think handling money right is a maturity issue, and only after you accomplish that can you start winning with money.

    • I know it’s controversial, but I think I’d support mandatory enrollment in 401k’s when you start a job. I guess you could opt out, but that would pick up so many more people than when you have to opt in.

  8. Great tips. The main point is not to panic because they have over 20 years to still save. It would have been better if they started earlier but the important thing is to start. I started late as well (early 30s), but I’m still making great progress.

    • I only saved a little until a few years ago, so I am playing catch up as well. I kick myself for missing those years of compound interest, but I still think we are on target to retire early. Even if you’re 50, you still can save up a bit of a nest egg to supplement social security.

  9. It’s funny I was having a conversation with my old boss who is freelancing now (he is in his 60’s) and he has absolutely no retirement whatsoever and I know he just bought and expensive trip to London to see his girlfriend. I joked about the whole thing to him and he said, at this point he will just work until he dies because now he has too. That really hits home, and even though I’m doing OK, I want to be doing so much better. I don’t want to HAVE to do anything in my 60’s…you know what I mean?

    • I do not want to work until I die. My back hurts now. I can’t imagine what it will feel like when I’m 70!

  10. This is a great post Kim! I was just telling my hubby this weekend that this is going to be the case for most millennials and others who graduated with a ton of student loan debt. The new reality is going to be small to no retirement accounts until you hit 40 at least. I don’t think it’s the end of the world, though, like you mention, there are so many things to do and adjustments that can be made. It’s never too late.

    • The worst thing is to feel that it’s hopeless and keep sticking your head in the sand. Even if you can build up a little to supplement social security, that is a help. I see my inlaws who live on social security alone, and it’s pretty meager. Even if they only had a few extra hundred dollars a month, that would be huge.

  11. Nice. But wrong. First, how do I make $50,000, so that I can put away $1,000 a month? Next, I had a retirement account. It was wiped out, along with my job and income in 2008. Why on earth would I invest again in the same place that already destroyed me? I’m better off putting my money in my mattress. And finally, it is not easy to make a little extra income. It is a full time job these days.

    • I’m very sorry that you lost your job during the recession. I know that happened to many people and it is hard to start over. I guess I’m a bit confused at how your retirement account was wiped out. Yes, the value probably did decline if you were invested in stocks during that period, but if you’d left it alone, it should be more than recovered by now. If you pulled it out during the down turn, then yes, that money won’t be recovered, but until you sell, you don’t lose your retirement, it just goes up and down in value. I used $50K because that is the average salary for the US. If you make $20K, then you are used to living on less and won’t need to put away $1000 per month. Base your numbers on how much you need to meet your monthly expenses. You can invest in whatever you choose, but if you don’t choose something with a high historical rate of return, you have to save that much more because you won’t have compound interest to help you. I understand your aversion to risk, but I am a firm believer that investing in broad index funds over time is the best way to build a retirement account. If you are ten years or less from retirement, I would advise moving into more conservative investments. That might not be what you wish to do, and that’s ok. I strongly disagree that it’s hard to make extra money. It might be hard from the stand point that you already work full time and don’t want to spend free time doing something mundane like mowing people’s yards or waiting tables, but if you need extra money to pay off debt or catch up on retirement, it can be done.

  12. Great story highlighting the problem of how little 40, 50 or 60 year olds have saved. As you said, even if you are 40 with no savings to speak of you have at least 25+ years to invest, grow and compound your money. That’ still a decent chunk of time especially for dividend growth investors. Plus after 25+ years of dividend investing you might not have to touch a lot of your principal as those stocks will be providing some passive income as well. Thanks for sharing.

  13. I’m glad you wrote not to skimp on insurances because that’s the first place people decide that they can cut…and then something goes wrong and instead of making it a little inconvenient it messes up all of retirement.

  14. Hey Kim, this definitely isn’t my personal realm, so I really don’t have any tips. However, I can say that the article was awesome. When I was working to help people get out of debt, I can’t tell you how many people didn’t invest, didn’t have savings, and had tons of debt because they were taking care of adult children. It’s really sickening that an adult would even accept that kind of care knowing what their parents must go through to provide it. Anyway, great post Kim….I loved it!

  15. Great advice! What about for ppl in their 50s? I just had a talk with my mom…good news is she listened! She is starting an e-fund…only $25 a pay period but its something… Though at this rate it will take her 2 yrs. to hit $1000 efund.

    I also told her to invest in 401k to get match asap and increase by 1% every year. Right now she’s behind on everything after losing her job with no savings and just getting back to work.

    I know she can contribute note to retirement to catch up…but frankly so doesn’t have it right now.

    I worry abt her retirement years…but do find relief in the fact that at least now she is trying

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