Here’s What Happens When You Don’t Start Saving for Retirement Until Your 50s

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It’s best to get an early start on retirement savings. Read on to see why starting later is less ideal, and how to salvage that situation. 

You’ll often hear about the importance of saving for retirement, and you should know that those warnings are not overblown. Seniors who have to survive on Social Security alone often end up cash-strapped because those benefits only replace about 40% of their pre-retirement wages. So unless the idea of a 60% pay cut sounds good to you, you’ll want to do what you can to build up some savings.

But what if you’re already in your 50s and you’ve yet to contribute money to your IRA or 401(k) plan? That’s certainly not an ideal situation to land in, but it’s also one you can salvage.

When you get a late start

The problem with starting to save for retirement in your 50s is twofold. First, you’ll only have a short period to sock away money in an IRA or 401(k). But also, you won’t benefit as much from investment gains in your account.

Over the past 50 years, the stock market has generated an average annual return of 10%, as measured by the S&P 500. If you save $300 a month in an IRA or 401(k) between the ages of 25 and 65, you’ll end up putting $144,000 of your own earnings into your retirement plan. But if your investments deliver an average yearly 10% return during that time, you’ll end up with almost $1.6 million. So all told, you’re looking at gains of over $1.4 million.

But watch what happens if you only manage to save $300 a month between the ages of 55 and 65. In that case, you’re putting $36,000 into your retirement account. But you’ll only end up with about $57,000. So you’re only looking at gains of around $20,000. Worse yet, you’re not looking at a very large nest egg for your retirement.

Even if you manage to save $1,000 a month starting at 55 through age 65, you’ll still end up with a little less than $200,000 in savings for retirement if your portfolio delivers the same 10% annual return used in the examples above. That’s better than a $57,000 nest egg, but even $200,000 isn’t a lot of money in the course of what could be a 20-year retirement or longer.

What to do if you’re first getting started with retirement savings in your 50s

When you don’t start saving for retirement until your 50s, you miss out on opportunities to grow your nest egg. But that doesn’t mean you need to give up on a secure retirement, either. There are a few steps you can take to better your situation.

Work longer. If you’re willing to extend your career by a few years, you can continue earning a paycheck and leave your savings untapped, plus potentially add to them. In the above example, saving $1,000 a month for 10 years at a 10% annual return resulted in about a $200,000 nest egg. If you work five extra years so you’re saving $1,000 a month for 15 years, you’ll end up with a savings balance of a little over $380,000.

Plan to work in retirement. Many people think that once retirement rolls around, work needs to be off the table completely. But there’s no reason to force that hard stop. If you hold down a part-time job, you can earn money to help make up for a lack of savings. These days, jobs are more flexible than ever thanks to the gig economy.

Rethink retirement spending. If you’re not retiring with as much money as you’d like, you may need to rethink some lifestyle choices. That could mean relocating to a less expensive part of the country or living in a smaller home as a senior. But making choices like these could allow you to stretch your income without having to give up on smaller luxuries that make day-to-day life more enjoyable.

It’s best to start saving for retirement at as young an age as possible. If you didn’t do that, don’t beat yourself up. It’s not as if you can go back in time. The best you can do is move forward and aim to save as much as possible while you’re still working.

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