How to start saving in your 50s

Piggybank with glasses and chalkboard

Also see How to start saving in your 30s and How to start saving in your 40s.

If you've reached your 50s with little or nothing in the bank, you've got your work cut out for you.

You'll have to set aside more of your earnings and consider some savings-stretching options that wouldn't be necessary if you had started a little earlier in life.

You'll probably have to keep working, at least part time, after you reach 65, too. Kicking back and taking it easy will probably have to wait for a few years.

But believe it or not, there's still time to provide a decent retirement for yourself.

Just look at how typical families with typical jobs can save hundreds of thousands of dollars, even if they're starting from scratch at 50.

We used real incomes taken from the Bureau of Labor Statistics.

Between 50 and 65, we assumed each worker would be in the top 25% of their profession, with only a quarter of their peers making more and 75% making less.

That's a reasonable projection because these are the prime earnings years for most Americans.

Then we assumed they would work part-time between 65 and 70, with their income falling to the bottom 25% of all earners (that's to say 25% of the people doing this job made less and 75% made more).

We also assumed that savings would be put in a tax-deferred retirement account, such as a 401(k) plan or Individual Retirement Account, and invested in mutual funds that returned a solid, but certainly not spectacular, average of 6% a year.

You can do it, too. Just follow our 8 smart moves on how to start saving in your 50s.

Smart move 1. Free up some money.

You should aim to save between 15% and 20% of your salary.

If that's not possible, set aside just 5% now and make a plan to ramp up your savings by 1% every quarter until you reach your target goal.

We know that's a tall order with today's high cost of living. It will require you to freeze your expenses and pledge to invest all future raises.

Then sit down with your bank statement and an online budgeting program.

"You really need to look at your cash flow and see where things are going," says Mari Adam, president of Adam Financial Associates in Boca Raton, Florida. "Track your spending and do some serious thinking about where you can cut back to generate some more money for savings."

Chart showing how much the average person in their 50s has saved for retirement.The first thing is to stop throwing away money on stuff you don't really want or need.

Reconsider subscriptions, memberships, cable services, phone services and ongoing expenses. Check your credit cards for recurring charges.

For most people, learning to spend less is about breaking bad habits. This may be the last shot you have to impose some meaningful discipline on your finances.

Smart move 2. Pay down your credit cards.

If you're paying 15% interest — or more — on thousands of dollars of debt, you need to eliminate these obligations in addition to saving.

Over the next couple of decades, you'll be lucky if your savings earn 10% in more than one or two of those years.

But the money you invest in wiping out your credit card debt gives you a guaranteed 15% return — or more — every year.

"With credit card debt, your money is leaving you to pay interest," says Ben Barzideh, a wealth adviser at Piershale Financial Group in Crystal Lake, Illinois. "The sooner you pay it off, the sooner you can make money that is paying you back."

Our credit card payoff calculator will help you come up with a plan.

These 7 smart moves to cut your credit card spending can help you stop piling up new bills.

Smart move 3. Start saving in your 401(k) plan.

The first place you should start banking money is in your 401(k) plan.

Most of us are offered a traditional 401(k) plan, which means the money we contribute is tax-deductible.

Many employers match the first 1% of your savings dollar for dollar and then contribute 50 cents for each additional dollar you save up to 6% of your annual earnings.

That's an extra 3.5% you could be earning every year, money you don't want to leave on the table.

Our 401(k) calculator shows how your nest egg will grow based on your contributions.

Smart move 4. Choose the right investments and allocations.

Most 401(k) plans require savers to put their money in mutual funds, a type of investment that pools the savings of tens of thousands of people to buy a broad range of stocks, bonds or both.

We can understand why you might be a little nervous about that, especially if you've never owned stocks or mutual funds before.

You might be more inclined to put your money into something safer, such as a CD, Treasury bonds or a money market account.

But you have no chance of building the nest egg you'll need for a comfortable retirement by settling for the 1% or less those investments are currently paying.

You need the historically higher returns provided by the stock market to have any shot at success.

Most 401(k) plans make it easy for first-time investors by offering what's called life cycle or target date funds.

Just put your savings — up to $23,000 a year under current rules — into the one designed for the approximate year you plan to retire.

The professional managers running these funds buy a mix of stocks and bonds that seeks the best possible return with as little volatility as possible.

As you get older, life cycle funds adjust their mix of stocks and bonds to take fewer risks and ensure your money is there when you retire.

These 5 things everyone should know about target date funds explain most of the basics.

Smart move 5. Think about delaying Social Security.

The longer you wait to collect Social Security, the more you'll earn. Waiting until full retirement age can double your monthly check.

Use the Social Security calculator to estimate your payments.

If you were born in 1960 and earn $50,000 per year, you could expect to collect $1,082 in today's dollars starting at age 62 and a half.

If you wait until age 67, you'll collect $1,613 per month. But wait until age 70, and you'll collect $2,051 per month.

You may have waited a long time to start saving, but collecting Social Security is one of those times when waiting pays off tremendously.

Our 6 step guide to starting Social Security can help you get the timing right.

Chart showing retirement date expectations for people in their 50s
Smart move 6. Consider an annuity.

An annuity is a contract between you and an insurance company that can allow you to earn more from your portfolio than you might on your own.

Investors typically use the 4% rule to figure out how much they can draw down on their investments.

If you managed to sock away that $308,000 by age 70, the 4% rule says you could count on that producing $1,000 per month.

With an annuity, you give the insurance company your money, and in return, it agrees to pay you a set amount of money per month for a set period or until you die.

How much you'll get can vary widely, depending on your age, where you live and the term of the agreement.

But in many cases, annuities pay up to 6%. So on $308,000, that would be $1,540 per month — 50% more than you'd be able to draw using the 4% rule.

With an annuity, you are also buying a guarantee and security.

The downside is that you give up immediate use of your funds and may have nothing to leave to your heirs.

Nevertheless, it's an alternative you may want to start thinking about.

Add this to the $2,051 you could expect in Social Security income, and you're already looking at a possible $42,000 per year at age 70. Not bad.

Smart move 7. Pave the way for a reverse mortgage.

A reverse mortgage could be part of your backup plan.

It's officially known as a Home Equity Conversion Mortgage and administered by the Federal Housing Administration. To be eligible, you need to own your home outright, live in it and be at least 62 years old.

With a reverse mortgage, the bank pays you and essentially starts buying equity in your home, then charging you interest.

You can receive the money in a number of ways, including a lump sum, monthly payments for a set term or a line of credit.

The amount you can get depends on your age, the home's value and interest rates.

Let's say you had a $250,000 home. If you were approved to draw a maximum of $150,000 from the house, that could potentially get you $625 per month for 20 years.

It could help fill in some gaps in retirement.

The downside is that the amount you owe grows over time, and because you're not making payments, the interest can really add up. It can also come with high closing costs and fees.

Payment is typically due upon your death, when you move from the house or sell it.

At that point, cash, interest or other finance charges must be repaid. Any remaining equity can be passed on to your heirs.

Smart move 8. Prepare to work part-time in retirement.

Hopefully these options will allow you to stop working completely in your early 70s.

But Adam says you also need to prepare yourself for the possibility that you may have to work part-time between 65 and 70 to give your savings more time to grow.

It doesn't have to be so bad if you plan ahead.

Could there be the possibility for part-time work with your current employer? Are you in a field that would allow you to do consulting work a day or two per week?

"You should start thinking about the options and plan now to put yourself in that position later down the line. Keep your skills fresh," Adam says.

You might want to start strengthening your network, consider some continuing education and maybe even start building a small side business.

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