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No Retirement Savings at 50? Here's How to Get on the Fast Track.

Key Points
  • If you're behind on retirement savings, there are tax-advantaged ways to save that can get you farther faster.  

  • Start by maxing out contributions to your 401(k) and IRA and take advantage of catch-up opportunities for those 50 and older.

  • Make it easier by refining your budget, paying down debt and putting your savings on automatic—starting now.

Dear Carrie,

I'm facing my 50th birthday and am embarrassed (and a bit panicked) that I've saved very little for retirement. I have a 401(k) but there's not much in it. What should I do? Is it hopeless?

—A Reader


Dear Reader,

Your situation isn't hopeless—nor is it uncommon—but it certainly should be a wake-up call. Ideally, everyone should begin thinking about retirement with their first paycheck, but the reality is that many people don't start to seriously save (or panic) until much later.

In fact, according to statistics from the Federal Reserve, in 2016 the median value of retirement accounts for families with a head of household between the ages of 45 and 53 was only $82,600. For ages 55 to 64, the median was $120,000 and $126,000 for those between 65 and 74. In today's economy, that's not going to go very far.

Obviously for anyone in your situation, saving now has to be your middle name. But it's not just about putting away extra dollars. There are tax-advantaged ways to save that can help you get farther faster.

Make your 401(k) work its hardest

Since you have a 401(k) (or potentially a 403(b) if you are an educator), this should be your workhorse. In my opinion, everyone—no matter their age or circumstances—should contribute enough to at least capture any company match that’s available to them. That automatically puts extra dollars in your pocket. In a situation like yours, I'd go a step further and try to contribute the maximum allowed if you can.

The 2018 401(k) contribution limit is $18,500 plus an extra $6,000 once you turn 50 for a total potential savings of $24,500 a year. Your employer may limit your contributions to a percentage of your gross salary, so first find out how much your specific 401(k) plan allows, then go for the max.

Yes, it will be a chunk of money, but if you can—do it. Contributions to a traditional 401(k) are generally taken out of your paycheck on a pre-tax basis, which reduces your taxable income. (With a Roth 401(k), contributions are made with after-tax dollars, but any earnings are tax-free if you meet certain guidelines.) And since the money is taken out of your paycheck automatically, once you adjust to the monthly difference, it won't seem like such a hit.

Plus, this money can grow tax-deferred until you withdraw it. So don't let it sit idle. Make sure it's invested across a mix of stocks, bonds and cash that matches your feelings about risk and your capacity to take risk. If you're unsure, get some investing help, either through your plan or an independent financial advisor.

If you want to feel better about any sacrifice you're making now, use an online retirement calculator to estimate how much you could have at the end of 15 years. For example, if you save $24,500 a year from now until you're 65 and get a hypothetical average annual return of 6 percent, you could end up with about $570,000.1 How's that for motivation?

Consider adding an IRA

Once you've set your 401(k) in motion, you would ideally save even more in either a traditional or Roth IRA. Total IRA contributions are capped at $5,500 for 2018, with a $1,000 catch-up for age 50 and over. Your money can grow tax-deferred in either account, but there are a couple of things to consider that may make one or the other the better choice for you.

A traditional IRA can make more sense if your contributions are tax-deductible. When you're an active participant in a 401(k) or other company sponsored plan, tax deductibility is phased out at certain income levels, currently $63,000 to $73,000 for single filers and $101,000 to $121,000 for married filing jointly. 

While contributions to a Roth IRA aren't tax-deductible, any earnings are tax-free, so you're still getting a tax advantage. However, there are also income limitations to contribute fully to a Roth: $120,000 to 135,000 for single filers and $189,000 to $199,000 for married filing jointly.

Save in a regular brokerage account for a different type of tax advantage

If neither a traditional nor a Roth IRA work for you, funneling your extra savings to a regular brokerage account is also a good choice. There's no upfront tax advantage or tax deferral of potential growth, but any long-term capital gains from the sale of stock are generally taxed at a lower rate than ordinary income tax rates depending on your personal tax bracket.

Put the pedal to the metal

There's no way around it—you simply have to save more, starting right now. You can make it easier on yourself by refining your budget, paying off high-interest debt, and putting deposits into your retirement accounts on automatic so you're not tempted to spend the money somewhere else. Working longer is also perhaps the best way to expand your savings, while at the same time decreasing the number of years you will depend on that income.

And while you're at it, tell your friends and family what you're doing. Maybe you can be a good example and help them get on the right course before they, too, hit the panic button. Making saving a priority won't be easy in the short-term—but you'll thank yourself down the road for getting in high gear now. And if you also get your friends moving, they'll thank you too!

[1] This is an example for illustrative purposes only and cannot predict or project the returns of any actual investment. Your results will vary. Also, taxes, charges, and expenses that would be associated with an actual investment have not been factored-in which would lower returns. 


Have a personal finance question? Email us at Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.

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