As a society, we're constantly told to save, save, save, but that's not always possible. For a myriad of reasons, Jennifer James made it to age 50 without a hitch. retirement savings Like many people, life prevented James from adequately preparing for his financial future.
Verify: 25 Cheap and Beautiful Places to Retire with Only $100,000 in Savings
For you: 9 Simple Ways to Build Wealth That Lasts Until Retirement
Entering middle age without sufficient savings is a common occurrence. According to a 2019 report from the Government Accountability Office, nearly half of households aged 55 and older had no retirement savings.
For late starters, the mountain to climb can seem daunting, if not impossible. But James' story shows that with focus and determination, it's never too late to make a difference.
See also Alternative retirement plans for those who started saving late.
Earning passive income doesn't have to be difficult. You can start this week.
Falling behind on retirement savings
Like many people, James found herself in her early 50s with no money set aside for retirement. She was a divorced single mother supporting two children on a $45,000-a-year administrative assistant salary. Between rent, food, utilities and child support, she had nothing left to contribute to the future.
“I knew I had to increase my income, but without a college degree, I felt stuck,” James recalls. “I was living paycheck to paycheck, trying to survive.”
Types of retirement plans: How to choose the right one for you
Getting a college degree increased your salary
On the advice of his mentors, James decided to go back to school at night to complete his bachelor’s degree. It was difficult to juggle work, college, and family, but James persevered and graduated at age 53. With degree in hand, he landed a new position as an office manager earning $65,000 a year—a 50% pay increase.
“Finally, finishing my degree opened up new opportunities for me that changed everything,” she said. “It was a struggle, but it was worth the effort.”
Saving 20% of your income
With his new higher salary, James committed to saving 20% of his take-home pay. “I set up automatic transfers from my checking account to my savings account to pay myself first,” James said. While living on a tight budget was a challenge, his motivation was to ensure a comfortable retirement one day.
Within two years, James had built up an emergency fund equal to three months of living expenses. “Having that cushion greatly reduced my financial stress,” he said. “I could handle surprises without going into debt.”
How to Maximize Retirement Accounts
At age 55, James took steps to maximize his retirement savings in his 401(k) plan at work. He increased his pre-tax contributions to 15% of his salary, the maximum allowed. His employer matched 50% of a portion of those contributions, further boosting his savings.
Additionally, because James was over age 50, he was eligible to make catch-up contributions (elective contributions above the normal limit available to people age 50 or older). By taking full advantage of his 401(k) plan features, including catch-up contributions, James put himself in a better position for retirement.
James also opened a traditional IRA and contributed the maximum amount allowed per year.
“It was tempting to spend that money instead, but I stayed focused on the future,” she said.
After five years of diligent saving, their retirement accounts exceeded $100,000.
Paying off your mortgage early
At 58, James was ready to become a first-time homeowner; she purchased a small townhouse in her dream neighborhood. She put down 30% from savings she had accumulated. James also began making biweekly mortgage payments instead of monthly to speed up the amortization of the loan.
He also continued to save 20% of his income, putting half toward maximizing retirement contributions and the other half toward additional mortgage principal payments. Within eight years, James had paid off the house.
Investing in the stock market
At age 60, James felt ready to start investing in stocks. She educated herself on the basics of investing and opened a brokerage account.
“I focused on adding money to a mix of solid dividend stocks and low-cost index funds,” James said. “Dollar-cost averaging helped minimize the normal ups and downs of the market.”
Within five years, James' stock portfolio had grown to more than $150,000. Combined with his retirement savings and the value of his home, his net worth now exceeded $300,000.
Transition to part-time work
At 65, James was ready to retire from her day job. She switched to working in an office part-time, just three days a week, to generate income to help cover her daily expenses.
“Working part-time gave me flexibility and money to have fun in retirement,” she said.
James also withdrew 4% to 5% from his investment accounts annually, while letting the rest continue to earn interest. By cutting back on expenses and sticking to a budget, he found that he was actually able to spend less than when he was working full-time.
Reflecting on his change of direction
Reflecting on his career, James attributes his success to the disciplined savings plan he began at age 50 and diligently maintained until retiring at age 65.
“The key was to cut back on spending to maximize savings once my income increased,” she said.
Although it required sacrifice, James' net worth grew by about 20% per year through consistent savings, debt reduction, and smart investments.
“I’m now 68 years old and I love early retirement,” James said. “It just goes to show that it’s never too late to change your financial life if you focus and work on a plan.”
Her advice to others is to first believe that you can do it, even later in life. Second, come up with a realistic but aggressive savings plan – pay yourself first before you spend. Finally, be willing to make some sacrifices – it’s only temporary until retirement.
“With determination and a smart plan, you too can achieve financial independence,” James said. “Don’t give up hope just because you’re starting late.”
More from GOBankingRates
This article originally appeared in GOBankingRates.com: I was 50 and had no retirement savings: How I managed to overcome the situation and retire comfortably
