I’m 45 With No Retirement Savings…Now What?

If you haven’t saved much for retirement and are past 40, you aren’t alone. The median balance of 401K savings for people 35 to 44 is right around $24,000. It is best to start a nest egg earlier, however we have no control over what has already happened and there is still room to build a comfortable retirement.

The Good News:

The kids may be grown: A lot of people who have struggled to save for retirement had kids younger in life.  BY 45 these children may be grown and out on their own, greatly reducing total household expenses. I’m 37, my stepson is 20, my son is 15, and my 2 nephews that we are raising are 12 and 10.  My house will be almost empty when I am 45.  Not only do the kids not cost money any more, but they cost less time.  Many parents forego overtime and 2nd jobs in order to spend time with their children.  With the kids grown time is freed up.

You are entering highest earning years of your career:  From ages 45 to 60 people who are motivated tend to rise into higher leadership positions. With 25 years of work experience people in this age bracket often are able to increase their income as high value individual contributors or are able to be on short lists for career advancement.

Social Security will likely be around for you: The Social Security trust fund has been on a death spiral for decades.  In 2034, just 10 years from now, the trust fund will be depleted and incoming payments will not cover promised benefits.  Future cuts are possible, however our government tends to cut benefits for younger people rather than for older people.  It is highly likely anyone who is already 45 today will not have their Social Security Benefits cut.  Furthermore, Social Security is based off of the highest 35 years of earnings a worker has.  Being 45 with no retirement savings makes it likely that you will work at least 35 years total, which means there will be no “0” entries in your calculation.  This is a much better situation than early retirees who will likely have many years of zeros.

You recognized the problem now: Recognizing the problem and taking immediate action to fix it will allow you to build a comfortable retirement.  At 45 there is still plenty of time to right the ship.  The people who look up at 65 with no money are the ones in real danger.

The Bad:

Compounding is not on your side: Compounding interest works wonders the longer it is in play.  Without starting to invest until 45 you have missed out on several “doubling periods”.  The heavy lifting therefore has to be done by your savings, and not by 4 decades of compounding interest.

When I was much younger and first learned about compounding interest I told my dad that saving $1 at 20 is like saving $5 at 40.  He thought for a moment and then replied, well that may be true, but it is often much easier to save $5 at 40 than it is to save $1 at 20.


Building The Retirement Budget:

In retirement expenses are also a lot less than working years.

In retirement the house is paid off, the kids are grown, there is no work commute so often only 1 car is needed, we are no longer saving for retirement, and with all of these factors a much lower income is required.  When a lower income is required, the tax bill is also lower! When the bulk of the income that is needed is from Social Security and retirement accounts, there are no payroll taxes owed.

I wrote earlier this years that in retirement people who earned $110,000 a year can often live in retirement off of $40,000 a year and still have more disposable income!

(Below is reposted from a section of my article “Why the 4% Retirement Rule is Trash” ) I wrote about a fictitious man named Jim who is single and earns $110,000 per year.

In retirement our 6 major expenses should be greatly reduced or eliminated:

  • Children: Kids should be grown, launched and self supporting.
  • Housing:  Average people spend at least 25% of their income on housing.  With a paid off house this expense should drop to around 5% to cover maintenance and property taxes.
  • Health Care: At 65 retirees are eligible for Medicare which costs about 75% less than plans on the open market.  Reducing health insurance costs from around 10% to 2.5%.
  • Retirement savings:  Most people save around 15% for retirement.  Being in retirement we are no longer saving for it.
  • Vehicles: Most couples are dual income.  In retirement they should be able to live just fine with 1 vehicle instead of 2 since no one needs to be at work.  Paying off a newer car while still working ensures no car payments or car purchase expenses for at least the first decade of retirement.   Most people spend around 12% of their income on vehicles.  This can drop to under 3% with only needing to cover maintenance, insurance, and gas.
  • Taxes: Income taxes can be much lower now because we don’t need to income to cover all the above expenses!  People who saving in Roth accounts will also greatly benefit as they are tax free.

Rather than needing $110,000 a year, Jim can live a very comfortable lifestyle on $40,000 a year. He actually is running a large monthly surplus compared to when he was working!  Jim gets $1,500 a month from Social Security, after adjusting for reduced benefits, so he only needs $22,000 a year in income from his retirement accounts.  Using a 6% withdrawal rate (of the remaining balance each year) Jim would only need $367,000 saved, just 13% of the $2.75 million the experts recommend for a 4% rule to cover 90% of his income, ignoring Social Security).

Working Retired
Income $110,000 $40,000
Retirement Savings 15% -$16,500 $0 Not saving for retirement
Income Taxes 20% -$22,000 $0 Need a lower income. Stand. Ded
and Roth Accounts
House Pmt 25% -$27,500 -$5,500 House paid off, only taxes, ins, maint.
Transportation 12% -$13,200 -$3,300 cars paid off, only insurance, gas, and maint.
Groceries 12% -$13,200 -$9,900 Reduce 25% more time to mealprep, no work lunches
Health Care 10% -$11,000 -$2,096 Reduced thanks to Medicare, actual Part B cost
Utilities 3% -$3,300 -$3,300
Misc 3% -$3,300 -$3,300
Remaining $0 $12,604

Is this going to be everyone’s situation? No, but the concepts carry over for most people.  Social Security is a big part of income in retirement for most people.  We pay less taxes when we need less income.  We can need less income by paying off our cars and houses.  Health insurance is less expensive through Medicare at 65 and through Obamacare before then with lower income.

Using a 5% or 6% withdrawal rate is not crazy.  The bottom line is don’t panic! It isn’t that bad and there is plenty of time to take action.

Action Plan:

The goal is to be able to replace your income without working in the least amount of time as possible.  We will assume a dual earning household with a combined income of $100,000 and a $200,000 mortgage.  Kids are grown and launched.

  1. Set goals and set up a vision board.  Goals need to be precise and measurable.  “Pay of the house by X date through $400/mo from side income each month.” Having a board with the goals and the status of your goals viewable each day ensures you don’t lose focus. “Reduce monthly expenses by $500/mo to allow to increase 401K to 10% of total income.”

2. Generate Extra Income: Seeking promotions and transferring jobs should be the first angle of attack to be able to save more money.  The next step is working a 2nd job and developing side hustles.  Mrs. C. is making around $500 a month reselling stuff from thrift stores on eBay.  That’s $6,000 a year! Adding that to the mortgage each month for people who don’t live in California or NYC will ensure the house is paid off before retirement.

3. Needing less income:  We get a double benefit from reducing expenses.  Not only do we not have those expenses anymore, but we also don’t have to pay taxes on the income that covers those expenses.  Paying off the primary residence and owning paid for vehicles should be a strong focus.  I like the idea of applying all side hustle income to paying off the house, while applying W2 income directly to building the nest egg.As a bonus, developing a side income before retirement can often lead to that income continuing in retirement. This income can be scaled up or down depending on how much time we want to devote to it.  This forces a concentration on both W2 and side income. Selling expensive vehicles on payments and down grading is a major step towards living more free.  Sell the 40K truck and the 30K SUV and replace with 2 5K paid for vehicles.  Worried about potential repairs? have a 3rd vehicle to rotate in.  Still much better on the balance sheet to have $15,000 in vehicles than to have $70,000 in vehicles.

4. Utilize employer matching: It shocks me how many people don’t use their 401K match. The 401K match is the best bang for your buck with retirement savings.  A dual income family with both spouses getting a 6% $1 for $1 match results in $6,000 of extra retirement savings per year.  This is massive over 15 to 20 years.


Social Security:

Calculate expected Social Security: Create an account at SSA.gov and download their calculator.  Run their calculator with entries for all your past earnings and expected future earnings.

I hate that most financial bloggers completely ignore Social Security, especially for people who are already over 40.  Social Security is an excellent base of income, especially for a dual income household where both spouses will work for 30+ total years.

Social Security looks at the highest 35 years of earnings, indexes those earnings to inflation, then averages out those months to get the Average Indexed Monthly Earnings or “AIME”.  This number is then applied to 2 bend points.  The first $1,174 of AIME is multiplied by 90%.  Earnings from $1,174 to $7,078 are multiplied by 32%, and earnings over $7,078 are multiplied by 15%. The total value of this is called the Primary Insurance Amount or “PIA”.

For someone who has an AIME of $4,000 a month their PIA would be $1,961.  This is the benefit they would receive at full retirement age, which is 67.  If the wait to take delayed credits they gain 8% a year for 4 years.  If they take Social Security early the benefit is reduced on a sliding scale.  The earliest Social Security can be taken is at 62, at which point the benefit will be reduced by a total of 30%.  In this case the benefit would be reduced to $1,373.

For a 2 earner household taking Social Security at 62, both with an AIME of $4,000 the total yearly income from Social Security would be $33,000.

Know what your Social Security benefits are projected to be!

Retirement Savings:

Because they don’t have a long window to save for retirement the incentive for saving in traditional retirement accounts is higher than saving in Roth accounts.  With traditional retirement accounts tax is deferred in the present and paid in the future.  With Roth accounts tax is paid in the present and exempt in the future.  Because this couple is backloading this savings, getting more money saved is the highest priority.  They are in a 22% tax bracket now, and in retirement look likely to be in the 0% bracket or the 12% bracket.

401K: The 401K is the most powerful tool available.  Currently the maximum contribution allowed is $23,000 per year, with an additional $7,500 allowed for those over age 50.  They can also contribute to IRAs but those will only be deductible for a married couple is the total Modified Adjusted Gross Income is under $116,000 for the year.

If this couple earns $100,000 per year and saves 15% or $15,000 total per year for the next 17 years, with a 5% 401K match here is what their retirement numbers would look like:

Year Balance Contribution Work Match Total Return Age EOY
2025 $0 $15,000 $5,000 $20,000 1.08 45
2026 $21,600 $15,000 $5,000 $41,600 1.08 46
2027 $44,928 $15,000 $5,000 $64,928 1.08 47
2028 $70,122 $15,000 $5,000 $90,122 1.08 48
2029 $97,332 $15,000 $5,000 $117,332 1.08 49
2030 $126,719 $15,000 $5,000 $146,719 1.08 50
2031 $158,456 $15,000 $5,000 $178,456 1.08 51
2032 $192,733 $15,000 $5,000 $212,733 1.08 52
2033 $229,751 $15,000 $5,000 $249,751 1.08 53
2034 $269,731 $15,000 $5,000 $289,731 1.08 54
2035 $312,910 $15,000 $5,000 $332,910 1.08 55
2036 $359,543 $15,000 $5,000 $379,543 1.08 56
2037 $409,906 $15,000 $5,000 $429,906 1.08 57
2038 $464,298 $15,000 $5,000 $484,298 1.08 58
2039 $523,042 $15,000 $5,000 $543,042 1.08 59
2040 $586,486 $15,000 $5,000 $606,486 1.08 60
2041 $655,005 $15,000 $5,000 $675,005 1.08 61
2042 $729,005 $15,000 $5,000 $749,005 1.08 62

Now at age 62 they have a total of roughly $750,000.  Using a 5% withdrawal rate, they can withdrawal a total of $37,500 per year. Using a 6% withdrawal rate they can withdrawal a total of $45,000 per year from the account.

The trinity study showed that looking at 30 year retirement periods with a  75% stock 25% bond portfolio that 96% of the time a 6% withdrawal rate was successful.  This study included the 2 years that started the great depression.  Excluding those 2 years, every other time period would end a 30 year period with a positive balance.  A 5% withdrawal rate under the same conditions had a 98% success rate.

Now before you come after me and tell me it would be impossible to save that 15%:

  1. This couple is in the 22% federal bracket and a 4.25% state bracket, so investing that $15,000 saves them around $4,000 in taxes, so they are really only net investing $11,000 out of pocket.

What if they saved less?  Here’s a more likely scenario. This couple saved only 10% of their income. This was enough for them to still get the full employer match. They also saved 2,600 in taxes, so it was like only saving $7,400.

Year Balance Contribution Work Match Total Return Age EOY
2025 $0 $10,000 $5,000 $15,000 1.08 45
2026 $16,200 $10,000 $5,000 $31,200 1.08 46
2027 $33,696 $10,000 $5,000 $48,696 1.08 47
2028 $52,592 $10,000 $5,000 $67,592 1.08 48
2029 $72,999 $10,000 $5,000 $87,999 1.08 49
2030 $95,039 $10,000 $5,000 $110,039 1.08 50
2031 $118,842 $10,000 $5,000 $133,842 1.08 51
2032 $144,549 $10,000 $5,000 $159,549 1.08 52
2033 $172,313 $10,000 $5,000 $187,313 1.08 53
2034 $202,298 $10,000 $5,000 $217,298 1.08 54
2035 $234,682 $10,000 $5,000 $249,682 1.08 55
2036 $269,657 $10,000 $5,000 $284,657 1.08 56
2037 $307,429 $10,000 $5,000 $322,429 1.08 57
2038 $348,224 $10,000 $5,000 $363,224 1.08 58
2039 $392,282 $10,000 $5,000 $407,282 1.08 59
2040 $439,864 $10,000 $5,000 $454,864 1.08 60
2041 $491,253 $10,000 $5,000 $506,253 1.08 61
2042 $546,754 $10,000 $5,000 $561,754 1.08 62

In this scenario withdrawing 6% would still lead to an income of $33,000 per year. Coupled with the Social Security income and they will have an income of $66,000 in retirement.

Real Estate:

Of course I am going to talk about real estate.  I would suggest this couple leverage the home they own and use a heloc to fund the down payment on a rental property.  The heloc would be the first thing to pay back with the earnings from the property.  They should buy a single family house that costs $150,000 with a 20% down payment on a 15 year mortgage.  This property should then be rented out on Airbnb and all earnings over the expenses applied to the mortgage.  In my area this is completely feasible and will result in the property being paid off in roughly 7 years (including the heloc down payment).  They should then repeat this process and buy a 2nd rental property once the first one is paid off.  This property will be paid off in 4 to 5 years since the profits from the first property will also be used to pay it down. Now the earnings from both of these properties can be used to pay down their existing mortgage.  These properties will fully pay off their primary residence before they retire.

Owning 2 paid for rental properties as retirement hits is a game changer.  These properties rented as short term rentals in the current year are earning around $20,000 a year after expenses.  Rates should increase over the next 17 years and will likely be close to double.

These 2 paid off properties should be generating around $80,000 per year in total income in 17 years. What if I’m half wrong? Then they will only be generating $40,000 a year! Still a win!

Part Time Work:

There is nothing wrong with having some part time work in the plan for retirement.  This is best to be the last resort money.  This is the money that is used not for basic necessities, but for the things we want to do.  To buy the boat, or the motorcycle, or the cruise.

I work nuclear plant outages as my main career.  I work with several people who are considered semi-retired.  One of the supervisors I have always admired is 67 years old and this is his extra fun money.  He earns roughly $25,000 in 2 months, and he works 2 of these periods every 18 months.  This is an average of around 10 weeks of work per year for $33,000 a year.  This is a pretty darn good retirement job.

Other people run small businesses in retirement that can be ramped up or down as needed.


It is absolutely possible to have a decent retirement when starting at 45.  What do you think of this plan?


John C. started Action Economics in 2013 as a way to gain more knowledge on personal financial planning and to share that knowledge with others. Action Economics focuses on paying off the house, reducing taxes, and building wealth. John is the author of the book For My Children's Children: A Practical Guide For Building Generational Wealth.

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