When You Haven't Saved Enough to Retire

Your best moves are to work more and minimize expenses, a planner says.

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Thankfully, it's rare for someone to reach retirement age only to lose a chunk of his or her retirement savings to fraud. But it's less rare for someone to reach retirement age and have little to no savings at all. According to the Employee Benefit Research Institute, Social Security is the largest source of income for people ages 65 and above, accounting for nearly 40 percent of incomes on average.

Nearing retirement without much savings "is not untypical," says Stuart Ritter, an assistant vice president and certified investment planner with T. Rowe Price in Baltimore. But making some small changes in lifestyle now can pre-empt the need for making huge changes later.

"We do presentations and have a chart that gives people a sense of how much they need to be saving. For example, if you're 50 and have no savings, you need to save 56 percent of your income, and it's not uncommon for people to come up afterwards and say, 'That's me,'" Ritter says. "It's an easy trap to fall into. You have college expenses, you meet someone, you get married, you have wedding expenses, then kids come along, they go to college, and all of a sudden, you're 55 and need to start saving for retirement."

The secret to being ready for retirement is no secret at all: Save early, save often, and diversify. And don't underestimate the importance retirement savings play in your life. "There are a lot of ways to finance everything else you're interested in buying, but when it comes to retirement, you have four sources of income: Social Security payment, wages from working, money you've saved in tax-deferred accounts, and money in taxable accounts. That's it," says Ritter of the growing majority of Americans who lack pensions. "There are no loans, no scholarships; you can't join the Army. The challenge in life is recognizing the importance of your own savings in a successful retirement."

If you reach retirement age and find you don't have enough saved to maintain your lifestyle, Ritter says, the most effective step you can take is delay retiring. That helps in two ways: It increases your ability to save, and it shortens the amount of time that your assets will have to support you.

The second thing you can do is figuring out ways to lower your expenses. "It's far more important that someone come to that realization and prioritize, rather than me saying, 'Here are your priorities.' Some will say the annual family vacation is more important, and they would rather sell their house and trade in the new car for a used car. Some will say the vacations are not important and give those up," Ritter says. "But it's important you do something—that you take actions on the things you can control. People who do that start having less anxiety."