3 ways to recover from a late start on retirement planning

Will your nest egg last?
Will your nest egg last?

I haven't made the best decisions when it comes to retirement planning. As a result, my wife and I are in our early 50s and have next to nothing saved for retirement. Do we have any hope of a secure retirement?—John

If it's any consolation, you're not alone. When the Employee Benefit Research Institute asked workers as part of its latest Retirement Confidence Survey how much they had set aside for retirement, more than a third of those between the ages of 45 and 54 who answered said they had less than $25,000 saved, while more than a quarter of those 55 and older said they had less than that 25 grand tucked away.

But while your trepidation at nearing retirement age with very little saved is understandable, your situation isn't hopeless. You still have enough time to significantly improve your retirement prospects, if you're willing to start taking serious steps now. Here are the three most important things you need to do:

1. Start saving your you-know-what off

Let me be blunt about this. To go from saving virtually nothing to saving diligently is going to require real discipline and some major lifestyle adjustments. But unless you're willing to make a concerted effort to spend less and save more, your chances of being able to live anything close to your current lifestyle after you retire are slim.

If you do make the commitment to save, however, you can still come up with a pretty decent nest egg in the waning years of your career. For example, if you and your wife are able to save, say, $500 a month and earn a 6% annual return on that money over the next 15 years or so, you would enter retirement with a stash of more than $145,000, according to this savings interest calculator. If you can manage to save $1,000 a month, you'll be looking at more than $290,000. Obviously, the amount you end up with will depend on how much you actually set aside and what rate of return your savings earn. But the more you can sock away, the larger the nest egg you'll end up with.

That said, I don't want to suggest that you'll be able to save enough in the time you have left to put you on easy street. For example, based on the 4% withdrawal rule a nest egg of $290,000 would generate annual income of just under $12,000, or a little less than $1,000 a month. That won't allow you to live large. But it's probably enough at the margin to materially improve your retirement lifestyle.

Related: Do I really need a financial adviser?

If possible, you'll want to do most of your saving in an employer-sponsored plan like a 401(k), which, aside from its tax advantages, has generous contribution limits ($18,500 this year, plus a $6,000 catch-up contribution for people 50 and older) and makes saving easier by automatically transferring money from your paycheck to your account. If you don't have access to a 401(k), you can open an IRA, which allows you to set aside up to $5,500 a year, plus an extra $1,000 for people 50 and older. But whether you save in a 401(k), an IRA, a taxable account or some combination of those three, the point is that the sooner you start doing so and the more you put away, the better your chances of having a secure retirement will be.

A quick note on investing your savings: You may be tempted to invest aggressively to earn higher returns and boost the value of your nest egg. Resist that urge. If the market goes into a major downturn, that strategy can backfire and leave you saddled with big losses that you may not have enough time to recover from by the time you retire. A better approach is to build a diversified portfolio of low-cost stock and bond funds that provides a shot at reasonable investment gains consistent with your tolerance for risk.

2. Stay on the job longer

In a recent study titled "The Power of Working Longer," retirement researchers showed that postponing retirement and continuing to work can be one of the most effective ways of boosting your post-career standard of living, often more helpful than increasing your savings rate.

The main reason is that to the extent staying in the workforce allows you to delay claiming Social Security, you can qualify for a larger monthly Social Security check down the road. For example, each year between the age of 62 and 70 that you put off collecting Social Security, you increase your benefit by roughly 7% to 8%. (You receive no increase for delaying beyond age 70.) And since the money you earn during those extra working years also counts in determining your benefit, the amount you receive could increase even more, which means delaying just a few years might boost your eventual payment by 20% to 25%, if not more. To see how much your monthly benefit might rise by working longer, you can to Social Security's Retirement Estimator.

Continuing to work can help in other ways too. You have more years to salt away money for retirement, and your nest egg has more time to rack up investment gains and grow before you tap it. And, of course, any extra years you work are years your nest egg doesn't have to support you, which, all else equal, means you should be able to draw more from savings stash each year without increasing the risk of running through your savings too soon.

As effective as working longer can be, however, don't count on staying on the job. The Employee Benefit Research Institute has consistently found that nearly half of workers retire sooner than they expected, often because of health issues, layoffs or because they have to care for a spouse or other family member. So by all means plan on working an extra year or two or three to enhance your retirement security. But don't slack off on saving now because you think you'll be able to compensate by extending your career.

3. Be flexible and resourceful

Depending on how far behind you've fallen in your retirement planning efforts, you may not realistically be able to save enough or put in enough extra years in your job to make up for lost time. Which means you need to be open to other ways to enhance your retirement security.

One possibility is to look for sources of extra income aside from Social Security and your savings. If you're a homeowner, for example, you may be able to tap the equity in your home for extra retirement spending cash by downsizing to a smaller, less expensive home in your area or by staying in your current digs and taking out a reverse mortgage. You can explore both options by checking out this guide from the Boston College Center for Retirement Research.

Related: Is there a low-risk way to avoid running out of money in retirement?

You may also be able to generate additional income to supplement Social Security and draws from your nest egg by finding part-time work (assuming you're healthy enough to hold down a job and can find work you consider acceptable). You can get an idea of what sort of job opportunities are available to older workers and retirees by going to such sites as RetiredBrains and RetirementJobs.com.

Then there are more, shall we say, radical moves you might consider. For example, you may effectively be able to stretch your retirement income by relocating to an area with lower living costs. To compare expenses in various cities, you can check out the Cost of Living section at Sperling's Best Places site and NerdWallet's Cost of Living Calculator. For that matter, if you relocate and downsize at the same time, you may be able to reduce your living expenditures while also coming away with an extra chunk of investable cash that can serve as a supplement to your nest egg.

Bottom line: I'm not saying it will be easy or that you can put yourself in the same position for retirement you would have been in had you saved throughout your career. But if you combine several of the steps I've outlined here — and keep an eye out for even more ways to generate more post-career income or lower your future expenses — you can still improve your chances of achieving a secure retirement.