What to Do If You Haven't Saved Anything for Retirement

"Don't get overly discouraged" if you have no retirement savings.

Aug. 21, 2011 -- Q: What kinds of investments would a 47-year-old investor who has saved nothing need to buy in order to retire by age 65?

A: E-mails like yours are becoming startlingly more common. Readers who have saved absolutely nothing toward retirement are realizing just how much trouble they're in and asking me what to do.

Readers of USATODAY.com's Ask Matt know that saving for retirement doesn't have to be an insurmountable task. If you start early, and the key is starting many years before you hit 65, saving for retirement is very doable by just about everyone.

But, sadly, some investors don't realize until they're well into their 40s that they need to start saving. It's a shame, really, because time is perhaps investors' greatest asset in tackling this significant financial goal. By starting early, you can actually save less and wind up with more for retirement.

But what now? At this point, you'll need to take a very close and hard look at what work you have cut out for yourself. It's critical to calculate as closely as you can what your retirement needs will be, how much money you need to retire, what return you'll need and what kind of investments can get you there without keeping you up at night.

An excellent starting point is the Retirement Analyzer from IFA.com. This free retirement calculation tool uses a statistical method called Monte Carlo Simulation to give you an idea of all the possible outcomes for your money in the future. The simulator uses real historical returns, and statistical techniques, to tell you what the best, worse and most likely outcomes could be.

Inputting your information is pretty eye-opening. I had to estimate a few things, including your current income, which I guessed at $50,000 a year. I also estimated your income to rise by 2.5% a year, that you'll save 15% of your annual income, you plan to be retired for 30 years and that you'll need $30,000 a year in today's dollars. This also assumes that you're invested in a somewhat conservative mix of assets, given that you're older and can't afford a huge hit to your investment value. I also assume you will dial back your risk over time as you near retirement, which is called a "glide path" in the IFA.com online tool.

The results aren't what you're probably hoping for. Given all the assumptions, the most likely outcome is that you'll run out of money by the time you turn 73, according to the IFA.com Retirement Analyzer. Even if the market performs beyond expectations, and turns in one of its best performances ever, you would run out of money by the time you turn 80. The worst-case scenario, where the market performs poorly, you would run out of money by the time you turn 70. Not good.

Don't get overly discouraged. You might be tempted to seek some sort of magical investment that will generate huge returns. And you might luck out. But relying on luck and chance for something as important as retirement is reckless.

You just need to get your retirement plan in place and start making sacrifices. You should try right away to sock away more than 15% of your income. You might also look for ways to increase your income, either by finding new work or perhaps by asking a spouse to work. It's not too late to get your plan on track, but your advantage of time is certainly running out.

Even slight changes now can have a large influence on your future retirement. If you could increase your income to $65,000 and save 20% a year toward retirement, that would most likely increase your retirement savings until you reach the age of 81 years old. It's still not enough, but you can see these somewhat small adjustments can have a huge result.

Start saving now. There's still time, but stop waiting

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantz