Starting from scratch at 50: Rebuilding savings

@Money February 24, 2012: 1:33 PM ET

NEW YORK (CNNMoney) -- My wife and I are almost 50 and just started working again after being out of the job market for two years. Basically we have nothing left. How do we start to build again? -- Tony, Allentown, Penn.

Given that the unemployment rate for people age 45 to 54 soared to more than 8% in 2010 (and still hovers above 6% now) and that the unemployed in that age group have been out of work for almost a year on average, many people face the same daunting task you do: rebuilding their finances late in their career after a devastating setback.

I know I don't have to tell you how tough that can be. You're living it.

Clearly, the extent to which you can recover from a major setback depends on what kind of financial shape you were in beforehand and how much you had to drain your resources while unemployed. It's also true that you stand a much better chance of improving your future prospects by coming up with a rebuilding plan and sticking to it as much as you can.

Here's what you can do to get back on track:

1. Get your debt under control. During prolonged bouts of unemployment many people are forced to fall back on credit cards, home equity lines of credit or other forms of borrowing to survive.

If you've had to resort to such tactics to get by, now's the time to assess where you stand.

Laid off and making the retirement savings last

Your first step is to assure you're making at least the minimum payments required to stay current, especially on any housing debt. The last thing you want is to see your financial recovery derailed because of late fees and penalties or, even worse, a foreclosure or other attempt by a lender to call in a loan.

Once you're sure you're meeting the minimum obligation, plan to repay your debt more quickly (although first you'll want to set aside some savings as outlined below).

For help in creating a long-term strategy to rid yourself of debt, you can check out these debt-management tools.

Now that you're working again, you might also consider refinancing your home mortgage to take advantage of today's ultra-low borrowing rates.

Granted, that could be difficult if you owe more than your house is worth or your credit rating has taken a beating the past few years. But the recent $26 billion settlement between major banks and state attorneys general or one of the other government programs designed to help homeowners disadvantaged by the foundering real estate market may be able to help.

2. Rebuild your savings fund. Once you're on top of your debt, you should accumulate an emergency savings stash. This fund should equal to three to six months' worth of living expenses and be tucked in a secure place, such as an FDIC-insured savings account or short-term CDs.

While creating and maintaining such a cushion doesn't immunize you against financial misfortune, it will give you maneuvering room if you're hit with large unexpected expenses or, heaven forbid, another layoff. As your finances improve, having an emergency cushion will also reduce the chance that you'll have to go into debt or liquidate retirement savings or other investments in the event of a financial setback.

Even after shopping around, you'll find that the yields available these days on savings accounts and the like are, for lack of a better word, pathetic.

But you do not want to jeopardize your emergency cash by stretching for a higher return in riskier assets. Security and capital preservation are the goals here. So you want to absolutely sure that every cent of this money will be available regardless of how the economy and the markets are performing.

Ask the Help Desk your questions about financial planning

3. Start contributing to retirement accounts again. Once you've got a handle on your debt and have an emergency savings fund, you can begin saving and investing for the future, specifically your retirement.

Starting from scratch at age 50 is hardly an ideal place to be. But since that's where you are, you want to do the best you can to build a nest egg.

And if you're diligent about it, you still have sufficient time to put together some serious scratch. By way of an example, someone who makes $50,000 a year and invests 15% of that salary in a 401(k) could have upwards of $200,000 by age 65, assuming yearly salary increases of 2% and a 6% annual return.

Work to age 68 (which may be more realistic given your situation) and the nest egg expands to almost $275,000. What's more, three extra years on the job will increase your eventual Social Security benefit by roughly 25%. Check out what your retirement income could be using different savings rates, retirement dates and investing strategies.

I'm not saying any of this will be easy. But the sooner you launch your plan to rebuild your finances and follow through with regular savings, the better. You'll boost your chances of achieving financial security and a decent retirement.

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