Investing for Retirement When You Have Little or No Savings

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One of the dirty little secrets in the financial community is that the majority of Americans don't adequately save and invest for retirement. Sadly, millions of people will enter retirement the same way they lived during their working years: broke.

I wrote “It's High Time to Roll Out the Alt-Retirement Movement” to call attention to the fact that while it may be possible to save and invest your way to retirement, most people won't. For many it will be because finances won't allow for it. In other cases, it will be because of a lack of discipline or commitment to the goal.

But I want to clarify here that that article was not intended to suggest that saving and investing is not important for retirement. It was mostly to point out the realities of the retirement years, absent sufficient investments.

None of that is to imply that saving and investing money is not important. In fact, in many respects, it's even more important for those who are not prepared for retirement.

This article will deal with entering the years leading up to retirement — or the retirement years themselves — with little or no retirement savings. That's a condition that absolutely needs to be remedied. And most people have more control of that than they realize.

Any Savings Are Good Savings — Especially in Retirement

A not-so-funny thing happens when you retire: The need for money doesn't go away. Retire on a shoestring, with no more than Social Security and maybe a small pension benefit, and life will get pretty uncomfortable fast. You may find yourself working part time or even full time. If that's the case, retirement will turn into non-retirement.

That's certainly not what most people are planning on. But it'll be the end result if you don't have adequate retirement savings.

In the retirement years, as during your working life, any savings are good savings. There will always be times when your current income will not be sufficient to cover your expenses. It could be due to a sudden avalanche of expenses or from a consistent lack of sufficient income to cover living expenses.

Whatever the cause, having some amount of savings can even out the ups and downs of financial life. Maybe you don't have the time or resources to build a $1 million retirement portfolio. But a $100,000 portfolio can still help. If you withdraw 5% of the balance each year — $5,000 per year — it could be an important income supplement. It will be even more important if you're no longer able to earn money from some form of employment.

This is why, where retirement is concerned, we need to focus on saving and investing money. It doesn't matter where you are in the process — retirement just a few years away or you're already in it. Whatever you're able to save can make a meaningful difference.

>>Further reading: How to Invest for retirement

If Nothing Else, You'll Need a Great Big Emergency Fund

Given today's cost of living, any amount of savings less than $100,000 can't be counted on as a steady income source. But that doesn't mean it's not worth pursuing.

It is. It always is.

Even if the amount of money you save doesn't qualify as an income source, it can still be an emergency fund. The bigger that fund is, the better your retirement years will be.

If nothing else, a large emergency fund will add balance to your finances. For example, if your income is unreliable (dependent on part-time, seasonal or contract work), an emergency fund can fill in the gaps in a low-earning year.

Just because you can't save and invest enough to create a viable income source doesn't mean you shouldn't save and invest. Creating and building a large emergency fund is a worthy goal all by itself.

We're not talking the standard three to six months' living expenses here either. It has to be something much larger. Maybe enough to cover your living expenses for one or two years.

There are several ways a large emergency fund can improve your life in the retirement years, even if it can't provide a steady income:

  • It relieves the stress of “living paycheck to paycheck.” That's tough enough when you're younger but massively more difficult when you're over 65.
  • It can balance out a tightly stretched income situation.
  • It allows you some luxuries, like an occasional vacation.
  • And it can even do the important work an emergency fund is meant to do, like help you deal with a rash of healthcare expenses.

If you can't build a retirement portfolio for income, at least build a great big emergency fund. The retirement years will be better with it than they could possibly be without it.

It's Never Too Late to Save and Invest

It's hardly unusual for people reaching 60 or 65 — or even 55 or 50 — to abandon any hope of saving and investing money. They reason that if they haven't been able to up to this point, it's simply “not meant to be.”

That's absolute nonsense. If you have such thoughts, you should put them out of your mind. Immediately.

Just as you can begin saving and investing money in your 20s or 30s, you can do the same in your 50s or 60s. It's never too late. In fact, with the retirement years looming, there's never been a better time.

Forget about what you haven't done and decide what you're going to do now.

Whatever you can save and invest from this point — no matter how much or how little — will have substantial impact on how well the rest of your life will go. If you haven't saved until now, you're already well aware of how difficult that “lifestyle” can be. Resolve now to put an end to it and to chart a new course.

Think of it as a new adventure; as we get older, we only need more of those.

Why It Can Be Easier to Save and Invest Near or in Retirement

This is the side of the savings equation that a lot of older nonsavers don't give enough consideration to. Typically, by the time you reach your 50s — and certainly your 60s — there are some expenses that are conspicuously absent.

For example, it's likely that your children are grown and gone. Hopefully, you're no longer paying for their college educations. You're not saving money to buy a house. In fact, you're not facing any of those major life expenses that you did earlier in life.

The fact that you aren't should enable you to concentrate more money on saving and investing.

Here's a reality you'll need to confront, but it may ironically make the task of saving and investing a lot easier:

If you don't have a healthy retirement portfolio saved, your standard of living is likely to take a big dive when you reach the retirement years. If you decide to confront that reality now — by dramatically cutting back on your cost of living — you'll free up money for savings.

At this point in your life, you generally need money for two purposes: living and saving. You need to take full advantage of that situation.

Save and invest for all it's worth, because it will dictate your future. Whatever you haven't done up to this point is in the past. There's no time like the present to commit to your future.

How to Begin Saving and Investing Near or In Retirement

I've already suggested the need to drastically cut back on your living expenses. There are different ways you can do this. If it's just you or you and your spouse, that's a lot easier to do than if you had children in tow.

Move into a less-expensive living space. Own no more car than you can afford without a loan payment. Cut way back on luxuries. Concentrate on paying off debts — once they're paid, you'll have more money for savings and investment.

In the meantime, sell off anything you have that will free up some cash. Even a few hundred dollars can be enough to start or accelerate a fledgling savings plan. Bank any windfalls, including your next income tax refund.

The basic idea is to clear the decks of extraneous expenses and get as liquid as possible as quickly as possible. Once you do, it will become easier to save and invest money, even if you've never done it in the past.

Creating a Savings and Investment Strategy Late in Life

Once you set the stage for saving and investing, you'll need to convert it into a habit. The strategies to do this are basic:

You don't have to do anything dramatic on the investing side. Your early savings should go into an emergency fund. You should have a minimum of three to six months' living expenses in that account. Anything beyond that should go into investing.

Since you have a more limited time horizon, you don't want to take on a high degree of risk. At the same time, you're going to have to accept some risk in pursuit of higher returns. Some investments worth considering can include:

Robo advisors may be the best option if you have no experience of investing money. They'll create a portfolio of stocks and bonds based on your personal risk tolerance. Then they'll handle all the investment management for you. All you need to do is fund the account on a regular basis.

An Example of What You May Be Able to Do in Just a Few Years

You may be thinking How much money can I save in just 10 years or so?

There are two answers to that question:

  1. More than you think, and
  2. Whatever you can save will be better than what you have right now.

Let's look past the “why” and focus on potential outcomes instead.

If you decided today to begin contributing $6,000 per year into an IRA, earning an average blended rate of return on investment of 7%, after 10 years you would have $88,701.

If you continue the same course for an additional five years, you'll have $161,328.

The smaller number would make a generous emergency fund. The larger one could represent an income-generating portfolio.

And if you're married and both you and your spouse use the same strategy, you can double those numbers.

In either case, you'll be a lot better off than you will be if you do nothing.

There's something else — something intangible — that may take place as well. You might begin to develop what we can refer to as saver's momentum. That's where you start with a basic saving and investing plan and expand the effort over time.

As you begin accumulating money and you see the magic that takes place as it grows, you'll have incentive to increase the effort. Before you know it, you may start saving even more money outside your IRA.

It's amazing how just a few years of concentrated saving and investing can change your life.

Challenge yourself to take the chance. You've truly got nothing to lose and everything to gain. Especially a more prosperous and secure retirement.

Kevin Mercadante

Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, He has backgrounds in both accounting and the mortgage industry. He lives in Atlanta with his wife and two teenage kids.

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