You'll frequently hear people stress the necessity of saving for retirement, and you should be aware that these cautions are not exaggerated. Social Security benefits only replace roughly 40% of pre-retirement wages.¹

Seniors who must rely solely on them frequently find themselves in financial difficulty. Try to save as much money as you can, unless the thought of a 60% pay decrease appeals to you.

There are two issues with beginning to save for retirement in your 50s. Firstly, your running out of time to put money in an IRA or 401(k). And secondly, you won't receive as much from your investment gains.

The stock market has produced an average yearly return of 10%² during the past 50 years. $300 down each month in an IRA or 401(k) between the ages of 25 and 65, you'll have contributed $144,000 of your own income to your retirement account.

40 years x 12 months = 480 480 x $300 a month = $144,000

Assuming your assets generate an average 10% annual return, you'll end up with close to $1.6 million. You're looking at gains totaling more than $1.4 million.

Let us say that you are starting late, and you can only save $300 each month between the ages of 55 and 65, you are contributing $36,000 to your retirement account in that situation.

10 years x 12 months = 120 120 x 300 a month = $ 36,000

But you'll only get roughly $57,000 in the end. Your potential gains are only about $20,000. That is not a sizable nest egg for retirement.

But save $1,000 per month, and you'll have a little over $200,000 saved for retirement.

^{Compound Interest Calculator3}

Even $200,000 isn't much money over the period of a retirement that could last 20 years or longer, though it is better than $57,000.

So, what should you do if you're 50 and just starting to save for retirement?

1. You can work longer! You can continue to receive a salary and leave your savings untouched, with the possibility to grow them, if you're ready to extend your career by a few years. In the previous illustration, saving $1,000 per month for ten years at a 10% annual return produced a nest egg of nearly $200,000. You will have a savings balance of over $400,000 if you work just five more years and save $1,000 each month for 15 years.

   ^{Compound Interest Calculator3}

2. Plan to continue working once you retire. Many people believe that employment should be fully eliminated once retirement arrives. To impose that abrupt stop, however, is unnecessary. In order to supplement your lack of savings, you can work a part-time job. In a gig economy, occupations are now more flexible than ever.

It's best to start thinking about retiring as soon as possible.

It is unlikely that you can go back in time if things did not turn out as you had hoped and you were unable to plan for retirement early.

The best course of action is to keep going, make as many financial sacrifices as you can, and save while you are still working.

Reference
¹https://www.fool.com/investing/2020/11/18/how-much-of-your-pre-retirement-income-will-social/
²https://www.slickcharts.com/sp500/returns
³https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator

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