Unexpected events might cause your long-term financial objectives, such as retirement funds, to be postponed. If this resonates with you, you're not alone yourself. In fact, according to Thrivent's Retirement Readiness Survey, over 44% of people who are close to retirement have done little to no retirement planning, putting their golden years at jeopardy. What would happen, then, if you had no retirement funds?
We'll look at how you can still retire with no money at all. Even if it's later than you planned, we'll also give you some quick tips to get started saving right now.
What would happen if you had nothing saved for retirement?
If you have little to no funds when you retire, you may still have a happy life. It may not look exactly as you had in mind. It's possible to fulfill your retirement goals with a little forethought, depending on Social Security income, and adopting lifestyle adjustments. Let's examine these choices in more detail.
Perhaps you'll need to depend on Social Security
For many seniors, Social Security is their only source of income since they have little to no savings. As early as age 62, you may file for Social Security benefits; but, the amount of your payment may vary depending on when you do so. If you file before you reach full retirement age, you get a portion of your entire pension. Your payout is increased by each month you postpone filing after reaching full retirement age, thanks to a credit.
As of late 2023, the average monthly Social Security payout was $1,710. That comes to less than $22,000 a year. Even while high earners could get more, Social Security still only pays for 30% of their previous income on average.
You may make a more informed decision about whether you can live on this amount if you know how much your monthly Social Security income will be. You may calculate your amount with the use of calculators provided by the Social Security Administration.
You may have to change your lifestyle and finances.
If you find that your retirement requirements need more than Social Security income, take into account the following options:
1. Create a thorough budget to save costs
Anyone who wants to extend their retirement income as much as feasible should consider leading a low-cost lifestyle. You may save more money by cutting down on your current expenses.
The first step to achieving any financial goal is creating a spending plan. Create a budget that will help you make sure your Social Security income and any other savings will last by first deducting your monthly costs from your income. Then, use your spending patterns to determine how much you can afford to spend each month.
2. Reduce the size of your house
Should you discover that your retirement costs exceed your income, you could need to implement substantial adjustments to reduce your spending, such reducing your home.
Even while selling your house and sentimental belongings might be challenging, the possible savings could be sufficient to increase your retirement egg, particularly if you move in with loved ones or to a more reasonable region. Prior to making a purchase, do some research to learn about the costs of homes in the neighborhood of your choice and the mortgage rates you are eligible for.
3. Keep up the work
You could have to postpone retirement if you don't have enough money for it. Indeed, according to the Thrivent Readiness Survey, Americans are reevaluating traditional retirement; thirty percent of respondents want to retire gradually, and five percent say they have no plans to retire at all.
It doesn't have to be a hardship, whether you work full-time or part-time. Working throughout retirement, particularly if it's job you find gratifying, may help you stay energized, focused, and active.
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How to begin retirement savings if you're beginning later
The time to begin retirement savings is always now. When the time draws near, think about using these tactics to optimize your savings:
Understand the gap in your funds.
Setting a savings objective is helpful even if you feel like you're far from your retirement goal. How much money do you need to pay your bills? Understanding this figure will help you make better decisions about how to bridge the gap between your living expenditures and Social Security benefits.
Are you unsure about your phone number? Use our calculator to help you prepare for retirement income.
Increase your retirement account contributions.
Save as much as you can today if you have little or no money when you approach retirement. There are several well-established methods for saving money using tax-advantaged accounts:
Benefit from tax-favored retirement plans
Plans with defined contributions, such as 401(k)s, provide an excellent means of tax-advantaged retirement savings. Generally speaking, you may contribute up to $23,000 year (for 2024) and an extra $7,500 if you're 50 years of age or older via a catch-up contribution. Your employer may match up to a portion of your contributions if it is available. You are throwing away free money if you don't take advantage of the match.
Although you can often start taking necessary minimum distributions at a certain age, you can typically start withdrawing from these plans as early as 59½.
Create a Roth or conventional IRA.
Comparable tax benefits to defined contribution plans are provided by IRAs. You make tax-deferred contributions that have compound growth potential over time. An IRA allows you to save up to $7,000 for 2024, plus an extra $1,000 if you're 50 years of age or older.
Traditional and Roth IRAs are the two main varieties.
Conventional IRA
Pre-tax donations are used to finance traditional IRAs. Your taxable income may be reduced by these tax-deductible gifts. When it comes time to take out withdrawals, taxes are required. Traditional IRA participation is not restricted by income.
IRA Roth
Since contributions to Roth IRAs are made using after-tax money, they are not subject to income tax. Earnings and eligible withdrawals are tax-free at the time of withdrawal, providing a tax advantage. Participation is subject to income limitations, unlike standard IRAs.
You may make contributions to a Roth IRA if your income is below the specified modified adjusted gross incomes (MAGIs).
You may still donate, but your contribution will be lowered if your income falls within the specified MAGIs.
You are not allowed to make any contributions to a Roth IRA if your income is more than or equal to the stated MAGI limit. If this describes you, have a look at these options.
Look at other assets
Depending on your risk tolerance and retirement age, there are a number of methods to invest your money, whether you use a brokerage account or an employer-sponsored retirement plan.
Since stocks may be volatile, they are seen as a hazardous investment. If you can weather market downturns and are far from retirement, stocks are an excellent alternative because of their potential for huge returns.
Bonds are loans that you make to the government, businesses, or local governments, with the repayment due at a predetermined interest rate. Bonds are a better option if you're getting closer to retirement since they have less risk and don't have the same growth potential as stocks. However, there is no certainty of a return on bonds.
A secure, low-risk investment, certificates of deposit (or CDs) are obtained from banks or credit unions in return for a set growth rate. As you approach retirement, you should usually give CDs first attention.
You may buy annuities, which are contracts for insurance, in return for a set income. Annuities may be bought without being exposed to the market, giving late savers the consistency they want.
Seek expert advice on your retirement strategy
You can still make saving for retirement a top priority, regardless of how close you are to retiring. Together, you and a Thrivent financial counselor may choose your savings target and develop a unique, practical savings strategy. Retirement may not look like what you had in mind if you're among the people who don't have any funds for it. However, you may still have a fulfilling life once you retire from the workforce, even if you're living on less.
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