58 and no retirement savings

It's never too late to start saving for retirement. These three steps can help you play catch-up.

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By Walter Updegrave, Money Magazine senior editor

Walter Updegrave is a senior editor with Money Magazine and is the author of "How to Retire Rich in a Totally Changed World: Why You're Not in Kansas Anymore" (Three Rivers Press 2005)

NEW YORK (Money) -- Question: I'm 58 and have never opened any kind of a retirement account. Is it too late for me to do so now, or should I hope that Social Security will be there when I retire in a few years? --Vincent I., Denver, Colorado

Answer: Although the Social Security system definitely faces challenges, the program isn't just going to disappear. At some point, the government will have to shore up the program, which could include moves such as increasing payroll taxes, raising the retirement age for younger workers and dialing back benefits in some way. But, while there are no guarantees, I think the chances are remote that people in or nearing retirement will see a significant cut in benefits.

So I don't think the question you should be focusing on is whether Social Security will be there, but how satisfying retirement will be if Social Security is your only source of income.

You can judge that for yourself by going to Social Security's Retirement Estimator, which will show you the monthly benefit you're now projected to receive based on your work history. When you see that figure, I think you'll agree that while you might be able to live on Social Security alone, you won't want to unless you don't mind a real no-frills lifestyle.

Which brings me back to the first part of your question: Is it too late to open a retirement account now?

My answer is emphatically no. You're always better off doing something than doing nothing. That doesn't mean you can put yourself in the same position you would have been in had you saved and planned for retirement your entire career. That's not realistic.

But even at this late stage you should be able to improve your retirement prospects in a meaningful way, if you commit yourself to the effort and follow these suggestions.

Crank up your savings, pronto. It's not enough just to open a retirement account. You've also got to fund that account with as much money as you possibly can every single year until you retire.

If you have a 401(k) or similar plan at work, that's the best place to start. Aside from the tax advantages that effectively boost your savings effort, a 401(k) directs your contributions from your paycheck into your account before you can get your hands on the money and spend it.

Most employers will also match a portion of what you save -- usually 50% of the first 6% of salary you contribute -- which allows you to leverage your savings effort even further. If you don't have such a plan, open an IRA.

Saving even modest amounts regularly can make a difference. For example, if you start investing $500 a month in an IRA now and earn a 7% annual return, you would have roughly $54,000 at age 65. Granted, you're not going to live large on that sum. But you're certainly better off having fifty grand in addition to your Social Security income than having no cushion to fall back on at all.

Delay retirement as long as you can. You say that you're going to retire "in a few years." Sorry, but I don't think that's a very good plan for someone in his late 50s who has set aside zip for retirement. You can significantly increase your chances of achieving a more comfortable retirement, though, if you retire later rather than sooner.

Why? Two main reasons.

First, the longer you work, the more you can save and the more time your nest egg has to rack up gains and grow. For example, if you follow the $500-a-month regimen I mentioned above to age 68 instead of 65, the extra three years would result in an account balance of $86,000, or nearly 60% more than you would have at 65.

The second reason it pays to stay in the workforce is that you can postpone taking Social Security, which increases the size the check someone your age will eventually get by roughly 8% a year (although you get no increases by delaying beyond age 70).

In fact, your eventual Social Security benefit may increase even more since, aside from credits for delaying retirement, adding additional years of earnings to your work history can also boost the amount your receive. This combination of a larger nest egg and a bigger Social Security check can mean the difference between scraping by and enjoying retirement.

Keep working during retirement. Even people who have saved enough to retire comfortably often decide to work in retirement to stay socially engaged. But in the case of someone like you who's getting a late start on saving, the case for finding part-time or seasonal work is even more compelling. The money you earn is money that you don't have to pull out of savings, which means your nest egg has a greater chance of lasting longer and providing greater security in the later years of retirement.

Of course, your ability to find work in retirement will depend on what kind of skills you have, what level of pay you're willing to accept and the overall health of the economy (which, obviously, isn't so great now).

But by checking out sites that cater to older job seekers such as RetiredBrains.com and RetirementJobs.com, chances are good that you'll be able to come up with some type of work that can supplement your Social Security.

But to paraphrase Bogie in Casablanca, none of this talk will amount to a hill of beans if you don't get started right way. So open that retirement account ASAP and start salting away as many bucks as you can. And don't stop until you retire, preferably later rather than sooner.

Thinking of relocating to get a better job? Tell us your story. Please send an email with a brief description of your situation and a photo to Donna Rosato at donna_rosato@moneymail.com. For the CNNMoney.com Comment Policy, click here. To top of page

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