Is It Too Late To Save for Retirement?

I see stories often about people who are older who all of a sudden want to start saving for retirement.  They don't know what to do or if it is worth it to even start.  Or they may be wondering if they can play "catch up" and still be able to retire at a decent age.

For this post, I am mostly talking about people in their 50's and early 60's, although some of the points could apply to almost any age.

It is common to hear stories of people in their 50's with almost no net worth, except for a little bit of money in a checking account.  Even worse, there are some who actually have a negative net worth due to debt.  A more typical story of a middle class American might be someone who is 55 years old who has 15 years left on his mortgage, but has only $10,000 in savings (outside of home equity).  Then the person wonders if he can retire at age 65.

The answer is usually "no".  Unless, in this particular example, the person makes a really high income or is about to come into some big money, then there is almost no chance for a comfortable retirement at age 65.  There is simply too much catching up to do and he won't have the major benefit of many years of compounding interest.

So in this example, should the person bother trying to save at all?  My answer is unequivocally "yes".  It is better to do something than nothing.  The person who is 55 years old is better off saving $5,000 over the next year than not saving it.  It provides a little more cushion in case of a loss of employment or some kind of emergency.  It is a small start to saving money, even if just modest.  Even if the person has to keep working way beyond 65, maybe he would have a chance for retirement at 75 instead of not at all.  Or there is the worse option of living in extreme poverty later on.

I am not sure why some people come to a realization of the need to save later in life.  Perhaps retirement just isn't that far off any longer.  It is possible that some people were just barely scraping by and couldn't find a way to save.  But this just shows the importance of doing the little things.  If you can just save 20 dollars per week, this will add up to over a thousand dollars per year.  If you do this when you are in your 20's and you can make small increases in your savings amount each year, then you can accumulate some real savings over time, assuming you make smart investments and we don't have some kind of a disastrous hyperinflation scenario.

I have written before about measuring how much you need for retirement.  Inflation makes it difficult, if not impossible, to figure out.  But I think the new reality is that most people are going to have to look beyond 65 years old and consider working at least part time after this age.  There will be major changes in Social Security and Medicare because of the massive unfunded liabilities that can't be paid off.  The government retirement age will go up.  You can absolutely bet on that.

I wouldn't rely on anything from Social Security.  If you want to retire at 65 or before, then you better have a high net worth, well over a million dollars.  Ideally you will have income producing assets like investment residential real estate.

I think everyone's situation is unique.  But if you are in your 50's or 60's or even older, and you realize that you don't have enough savings, then start doing what you can to increase your income and decrease your expenses.  Maybe you can make a really bad situation into a moderately bad situation.  Or maybe you can make a questionable situation into a good one.  You have to take the steps necessary to slowly build wealth over time.  It is better if you start really young, but it is never too late to start.