How to Retire When You Have Basically Nothing Saved

There’s a lot of magical thinking surrounding retirement. The rule of thumb is to target about 80% of your current income for your retirement, and while that number is a little sketchy, it’s useful in that it highlights just how expensive retirement can be. When you’re young, you think retirement is so far away there’s no need to worry about it just yet. And as you get older, there are often plenty of ways to kid yourself that you’ll be fine even though you haven’t really been saving much money. Some folks think they’ll sell an asset like a house or a business and live off the proceeds. Others count on Social Security or assume downsizing and moving to a lower-cost area will solve all their problems.

And maybe all of that works out, but if you’re heading towards retirement age and you skipped the part about saving an enormous amount of money, the simple fact is you’re going to have to contemplate living off a relatively small income in your golden years. And you’re not alone—the average American has just $65,000 saved for retirement—and if you look at just folks who have reached retirement age, the number is just $255,200. That is...not a lot of money to live off, potentially for decades. The average Social Security payment is just $1,656.30 per month—that’s less than $20,000 a year.

Even if you can make your numbers work in terms of housing, food, and other necessities, the real retirement killer is going to be healthcare. Medicare helps, but even with it, your average out-of-pocket expense will be roughly $6,500 per year—which is almost a third of that average Social Security benefit. So if you’re staring down retirement and haven’t saved much money, are you completely out of luck? Not necessarily—but the time to make some moves is right now.

Step one: Start saving

First of all, just because you’re close to retirement age with no savings doesn’t mean you have to hit retirement age with no savings. You still have some runway, so take advantage of that. Make a budget and stick to it (it’s a good idea to create an account over at www.ssa.gov to see what your estimated Social Security Benefits might be), pay down any debt you’ve accrued, and then make a savings plan. Hiring a financial advisor is always a good idea, but the basic strategy is pretty straightforward: Once you’ve handled debt and reduced your current spending, max out your contributions to retirement accounts, take full advantage of any employer matches, and if you’re over 50 try to make “catch-up” contributions (currently up to $7,500 per year for 401(k), 403(b), and other retirement accounts).

If you don’t have a retirement account, now’s the time to start one—you can fund an individual retirement account (IRA) with any amount of money, and you can find companies that offer IRAs with no minimum balance requirement. Even five years of disciplined saving in a retirement account can have some surprisingly robust results—and if you’re starting from zero, any amount of tax-deferred savings will help.

Step two: Delay

Once you have your financial house in something close to order, it’s time to face facts: You’re probably going to have to hold off on retiring, if you can. While you can retire at age 62 and receive Social Security benefits, there’s a huge difference in the amount of money you get if you hold off until you’re 67—or, best of all, 70. Plus, if you can work during these extra years, you can continue to contribute to your retirement accounts, building up budget for when you finally hang it up and retire. If you’re capable of working and have a job, delaying your retirement as long as you can stand it will help tremendously.

Step three: Downsize

Regardless of whether you’re able to save significantly in a final sprint, the key to a bargain retirement is going to be a severe lifestyle adjustment:

• Living situation. If you own a home and you’re caught up on the mortgage, consider selling it. Unlocking the equity you’ve built up can be another way of bulking up your retirement savings (and thus your income), and if the total cost of your home (mortgage, insurance, taxes, upkeep) is pretty high, downsizing to a smaller home in a lower-cost area can make a huge difference. Plus, moving to an area with robust public transit might allow you to live without the cost of a vehicle. If you’re renting, moving to a lower-cost area and paying a smaller rent may also be necessary. And even though the last time you had a roommate was decades ago, you might need to consider a roommate situation to split housing costs. You can use a service like Senior Homeshares to find someone compatible—or bite the bullet and move in with relatives. Finally, you can look into subsidized housing for seniors, which can reduce rent costs dramatically—up to 70%. The availability of these units varies greatly between areas, and there’s often a lengthy wait after submitting an application. If a subsidized housing situation would help, do your research now and get an application in ASAP.
• Equity. On the other hand, if you have paid off your mortgage and own your home, look into a reverse mortgage or a home equity investment situation. Either of these tools can allow you to remain in your home while accessing the equity you’ve built up in the property.
• Working. Even if you officially retire, you might consider holding down a job. At full retirement age (which varies, but is 67 for most people these days), you can earn up to $56,520 without impacting your Social Security income. If you’re relying on Social Security for the bulk of your income, anything you can earn over that will obviously help.
• Prioritize spending. Retiring with little or no money saved almost certainly means you’re going to have a very careful budget. That means prioritizing your needs over your wants—you need housing, utilities, food, healthcare, and a bare minimum wardrobe. Everything else should be subject to how much money is left over every month.
• Look for free stuff. Take advantage of your local library for your entertainment needs—there are a ton of books and other media you can borrow there—as well as a long list of other benefits, like free admission to events and attractions. There are plenty of free streaming services offering tons of TV shows and movies, and a cheap digital antenna can augment that with free broadcast television.
• Senior discounts. Don’t let pride mess with you—if you’re retirement age and you don’t have much saved, every penny counts. There are tons of discounts offered to older folks, but you often have to go looking for them. A starting point is joining the American Association of Retired Persons (AARP), which offers an introductory membership for just $12. The AARP leverages its membership to get a lot of discounts and deals, so that fee will go a long way.

Retirement can be terrifying if you haven’t saved a ton of cash to pay for it—but it doesn’t have to be. Adjusting your expectations and your lifestyle might be all that’s necessary to have a relatively happy retirement experience. The key is to start making a plan today.

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