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What to do if you’re 50+ with little savings

What to do if you’re 50+ with little savings

By Katie Martens

I once had a client who had to dip into his 401K to pay for medical bills that weren’t covered by his health insurance. He worked in a warehouse of a nonprofit, earning just above minimum wage. “Dipping” into a retirement investment account like a 401K makes it sound like he just took a few thousand, or maybe a few hundred dollars, but what may not be as transparent is the number of penalties he had to pay to take that money out before he was retirement age. There is no clawing that penalty money back, in addition to whatever amount he withdrew that he actually needed. The point of this anecdote is that it’s easy to assume that if people don’t have a lot saved up and they’re older than 50, then it’s because they just didn’t think ahead. Many adverse financial obstacles can fall into your path, and everyone has a different coping strategy for those financial obstacles. Whether or not you have a lot of savings, and you’re older than 50, depends on your circumstances and goals.

This article will give you some ideas of what your savings may look like as you age, and whether it’s important to you to have as much as you can in your savings, or if you have alternative income sources that can provide for you as you age, regardless of whether you work or not.

The Great Debate - To Save or Not Save?

There are varying opinions on how much an average person should keep in their savings, but I think most people would agree that you can calculate how much you should have starts with calculating what an average month of expenses looks like for you. The calculation looks like this:

Total amount of expenses to live each month

x Number of months you’ll need to stay afloat

Savings Amount

Whether or not you do the scantest amount of expenses, or you pad it to account for any unforecasted expenses (I like to do that), depends on your circumstances.

For example, I was just talking to another mother about savings accounts, because I was complaining about having to pay for a car expense that was really high for the value of the car, but we chose to pay for the repair because we didn’t want to take out a loan right now to purchase a new car. I had told her how grateful I was that we had plenty in savings to cover the multi-thousand dollar expense, but how frustrating it is to get that savings amount back to where it was prior to the car repair expense. During our conversation, I learned we had very different approaches to our savings amount: she said they kept 6 months’ worth of expenses in their savings, and I only keep about a month and a half worth of savings. Here’s why I think this example illustrates why everybody’s circumstances are different:

Your comfort level - do you feel more financially secure knowing you have a large amount of money in your savings? Some people feel a lot better seeing that amount, and others see an amount like that and think of ways they could “better” use that money. “Better use” doesn’t have to be a negative connotation either - yes, some will see that as money to be spent on clothing or restaurants or material items, but others will see that as not making more money sitting there in a bank account with an extremely low interest rate. Having your money sit in a savings account with a bank means you maybe make $0.04 every month on your money. On the other hand, you could, as many financial advisors like to say “make that money work for you,” by investing that money into a multitude of investment vehicles that would generate a greater rate of return. The question becomes, again, how comfortable are you with where your money sits?
Your investment strategy - this dovetails with the previous question, but is meant to make you think about where you invest your money. Many investment vehicles, like CDs, don’t allow you to withdraw the money before the term of the CD is complete. You need to make sure you understand the fine print of penalties and withdrawal timing before committing your money to any investment vehicle. Our financial advisor actually only keeps $5,000 in his savings account because he is so confident of his ability to liquidate any money he has in his various investment vehicles at any given moment.
Your financial goals and lifestyle - this is going to sound strange, but if you’re in an industry with more physical risk, you may want to keep more in your savings account if you can anticipate routine medical expenses. Likewise, if you have children, you may want to boost that savings amount for those unexpected, but not terribly surprising, expenses like braces or car accidents. I have a friend who feels so uncomfortable with investing her money, that she’s let her savings account grow so large that she probably has close to 2 years’ worth of savings. She has since opened an IRA account along with a handful of other investment accounts, but it clearly didn’t hamper her other financial goals or her lifestyle.

So you don’t have a lot, and don’t want to work forever

Whether through events that happened within or outside of your control, let’s say you are over the age of 50 with little savings or investments. Here are some actions you can take now, and then look at resources to help you along the way:

Set aside a little each month if you’re still earning a paycheck.
Look at ways to begin generating cash for you - whether that’s downsizing, selling a car, or holding a garage sale. You need to start winnowing down to what you actually need.
Crunch your numbers on a savings calculator to see what you need in order to live at the lifestyle you’re currently at. These kinds of calculators can be found with a simple Google search, and can give you an idea of how much you’ll need each year, or for a set of years, depending on how long you live.
Start looking into programs that provide benefits to you as you age - like Social Security and Medicare. Signing up for those

Resources abound for those approaching retirement age with little to no savings. Depending on your family situation, there may be family members who can help. If you don’t have family you can rely on for help, you’ll need to think about what you need specific help with, and how to resolve that issue. Here’s a very thorough listing of resources for the elderly in getting help ranging from dental help to housing.