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

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.