It’s Not Too Late: How to Begin Saving for Retirement at 55

Starting to save for retirement at 55 might feel overwhelming You might be thinking, “Have I missed the boat?” or “Can I really build enough savings in just a decade or so?” The good news is that it’s absolutely possible to create a meaningful retirement nest egg even when starting at 55 While you’ll need to be more aggressive and strategic than someone who began decades earlier, there are proven steps you can take right now to secure your financial future.

Why It’s Never Too Late to Start Saving

“In a perfect world, we would all begin saving [for retirement] from the time we receive our first paycheck,” says Nicole Gopoian Wirick, a certified financial planner in Birmingham, Michigan. “But we know life isn’t perfect, and sometimes a late start is unavoidable.”

And you’re definitely not alone in this situation. According to a May 2022 Federal Reserve report 25 percent of nonretired adults have no retirement savings at all, and only 45 percent of nonretired adults ages 45 to 59 believe their retirement savings plan is on track.

The truth is, no matter your age, the best time to start saving is NOW. Let me share some practical strategies to help you catch up quickly.

7 Steps to Start Building Your Retirement Savings at 55

1. Calculate Your Expected Retirement Spending

Before you can know how much to save, you need to understand how much you’ll need One of the most daunting risks of retirement is outliving your savings Take time to estimate your monthly expenses in retirement

• Housing costs (mortgage or rent)
• Healthcare (often higher in retirement)
• Food and utilities
• Transportation
• Travel and leisure activities
• Emergency fund for unexpected expenses

Knowing these figures helps create a concrete target rather than an abstract “save more” goal. Many experts suggest you’ll need about 70-80% of your pre-retirement income to maintain your lifestyle.

2. Maximize Your 401(k) Contributions

If your employer offers a 401(k) plan, this should be your first stop. In 2023, if you’re 50 or older, you can contribute up to $30,000 annually — the $22,500 standard limit plus an extra $7,500 in “catch-up” contributions allowed for those 50 and up.

The advantages of a 401(k) include:

• Pre-tax contributions (reducing your current tax bill)
• Potential employer matching (free money!)
• Automatic deductions from your paycheck (making saving painless)

“If your employer offers to match your 401(k) plan contributions, make sure you contribute at least enough to take full advantage of the match,” says Christopher Vale, senior vice president at Bank of America. For example, if your employer matches 50% of your contributions up to 5% of your salary, and you earn $50,000, contributing $2,500 annually would earn you an additional $1,250 from your employer. That’s essentially free money!

3. Open an IRA Immediately

Individual Retirement Accounts (IRAs) provide another excellent tax-advantaged option. For 2023, those 50 and older can contribute up to $7,500 annually.

You have two main choices:

Traditional IRA: Contributions may be tax-deductible now, with taxes paid upon withdrawal in retirement.

Roth IRA: Funded with after-tax dollars, but qualified withdrawals in retirement are completely tax-free.

The Roth option can be particularly beneficial if you expect to be in a higher tax bracket during retirement. However, there are income limits for Roth IRA eligibility, so check if you qualify based on your filing status and income level.

4. Refine Your Budget and Automate Savings

To free up cash for retirement savings, review your budget and eliminate excess spending. Food is one area where many people overspend, according to Nadine Marie Burns, a CFP in Ann Arbor, Michigan. “Making a meal plan could save over $100 per month on discarded or unused items.”

Once you’ve identified where you can cut back, set up automatic transfers to your retirement accounts. As the saying goes, “pay yourself first” – make retirement contributions automatic each month, and you’ll potentially grow your nest egg without having to think about it.

5. Pay Down High-Interest Debt

Credit card debt can sabotage your retirement savings plans with interest rates that often exceed 20%. Prioritize paying off these high-interest debts as quickly as possible.

Malcolm Ethridge, a CFP in Rockville, Maryland, also recommends creating a plan to pay off your mortgage before retirement. “Eliminating housing expenses reduces the amount of income you will need to replace on an annual basis,” he explains.

Entering retirement debt-free significantly reduces the monthly income you’ll need and allows your savings to go further.

6. Consider a Health Savings Account (HSA)

If you’re enrolled in a high-deductible health plan (HDHP), don’t overlook the potential of a Health Savings Account (HSA). These accounts offer a triple tax advantage:

1. Tax-deductible contributions
2. Tax-free growth
3. Tax-free withdrawals for qualified medical expenses

An often-overlooked benefit of HSAs is their potential as a retirement savings vehicle. After age 65, you can withdraw funds for non-medical expenses without penalty (though such withdrawals will be subject to income tax, similar to a traditional IRA).

7. Delay Social Security Benefits If Possible

For every year you delay receiving Social Security benefits beyond your full retirement age (67 for those born in 1960 or later) until age 70, your monthly benefit increases. This strategy can significantly boost your retirement income.

“This is a big one,” Vale says. “For each year you wait (until age 70), your monthly benefit will increase, and the additional income adds up quickly.”

Delaying benefits can also increase potential survivor benefits for your spouse, providing additional security.

Finding Additional Money for Retirement

Look for “Found Money” or Start a Side Gig

At 55, you still have time to significantly boost your savings through additional income streams:

• Consider part-time work you’ll enjoy
• Sell possessions you no longer need through online platforms
• Explore consulting in your area of expertise
• Look into the gig economy (driving, deliveries, freelancing)

Benjamin Offit, a CFP from Towson, Maryland, suggests considering downsizing your home: “Moving to a smaller place or to an area with cheaper housing costs” can free up considerable savings that you can add to your retirement fund.

Also check your state’s lost asset site for forgotten accounts. “My clients have reconnected with money they forgot they had, or lost connection to, because they moved and never received documentation,” says Sarah Carlson, a CFP in Spokane, Washington.

Make the Right Investment Choices

When saving for retirement at 55, you need the right investment mix that balances growth with appropriate risk levels. A diversified portfolio is key.

“You want a mix of different types of investments — with at least 60 percent in stocks — that is aggressive enough to help you reach your goal over time,” says Sandra Adams, a CFP in Southfield, Michigan. “But don’t take so much risk that you’re tempted to cash out when the market drops.”

Consider emerging trends as a strategy to diversify your portfolio. Sectors such as healthcare, technology, and renewable energy are areas with strong potential due to demographic changes and technological advancements.

The Power of Starting Today

Even with just a decade until typical retirement age, starting now makes an enormous difference. Consider this example from Bank of America:

By starting to invest approximately $300 per month at age 35, someone would accumulate significantly more by age 65 than if they had waited until age 45 to start investing $400 per month—despite investing less each period! The power of compound interest works in your favor, even with a shorter timeline.

Planning for a Longer Retirement

“Plan on living a really long life, possibly into your 90s, and do your retirement income calculations accordingly,” advises George Gagliardi, a CFP in Lexington, Massachusetts.

At age 55, the average American can expect to live another 25-30 years. This means your retirement savings might need to last three decades or more. The earlier you start building that nest egg, even at 55, the better positioned you’ll be.

Key Takeaways for Starting Retirement Savings at 55

1. It’s not too late – you still have time to build meaningful savings
2. Maximize tax-advantaged accounts – use catch-up contributions for 401(k)s and IRAs
3. Eliminate high-interest debt first to free up more money for savings
4. Consider working longer if possible – each additional year helps tremendously
5. Delay Social Security until age 70 if you can for maximum benefits
6. Look for additional income streams to boost your savings rate
7. Stay invested appropriately – don’t be too conservative, but don’t take excessive risks

Final Thoughts

Starting your retirement savings journey at 55 requires commitment and strategic planning, but it’s absolutely doable. By following these steps and staying disciplined, you can build a significant nest egg that will help support you through retirement.

Remember what Nicole Gopoian Wirick said: “It’s never too late to develop a comprehensive financial plan that is aligned with your objectives.” The key is to start today, maximize your contributions, and make smart decisions about how your money is invested.

I’ve seen many clients in your exact situation who, with focused effort, were able to create comfortable retirements even when starting later in life. The most important step is simply to begin – right now.

What steps will you take today to start building your retirement fund?

The “$1,000 a month rule for retirement” is a simple guideline to help you estimate the savings needed to generate consistent monthly income in retirement, typically requiring $240,000 in savings for every $1,000 of desired monthly income. This rule, based on a 5% annual withdrawal and 5% annual return, suggests that withdrawing $1,000 a month from a $240,000 portfolio would provide that amount of income without depleting your savings.

A 55-year-old should ideally have saved between 4.5 and 8 times their annual salary for retirement, though this is a general benchmark. The specific amount you need depends on personal factors like expected retirement age, desired spending, lifestyle, and other income sources.