One of the biggest questions associated with retirement planning is, “How much do I need to save?” A retirement study of American workers conducted by Schroders found that the average worker age 45 or older believes it will take $1.1 million to retire comfortably. However, only 21% of those workers expect to save $1 million or more for retirement.
Can you retire on no money? Having no savings means that you will be forced to rely on your Social Security benefit for income in retirement. According to the Social Security Administration (SSA), among elderly Social Security beneficiaries, 12% of men and 15% of women rely on Social Security for 90% or more of their income. So people do it. Still, it requires sacrifices, hustling, and planning.
Key Takeaways
- Retiring with little to no money saved is not impossible, but it can present some challenges to your financial plan.
- Depending on where you’re starting from, you may need to delay Social Security benefits, work longer, or drastically reduce expenses to retire with no money saved.
- Talking to a financial advisor can help you create a realistic plan for retiring with no savings.
- Investing money vs. saving it can help you to build wealth, so that you don’t go into retirement empty-handed.
Understand Your Social Security Benefits
Social Security benefits provide a stream of income for retirement, so if you’re trying to retire with no money saved, it’s important to understand how much you might be able to collect. As of November 2023, the average monthly retirement benefit from Social Security was $1,844.76.
Whether you receive that amount, or more, or less, can depend on a number of factors, including your employment and earnings history and the age at which you retire. The earliest you can begin taking Social Security retirement benefits is age 62, but claiming benefits early reduces the amount you’re entitled to receive. Delaying benefits until age 70, on the other hand, can allow you to claim an increased benefit amount.
If you’re retiring with no savings, it may be to your advantage to wait as long as possible to take Social Security benefits. Calculating your estimated retirement benefit at different ages can help you determine when the timing may be right to apply for Social Security.
According to the SSA, Social Security benefits typically account for a replacement rate of roughly 40% of a retiree’s previous working income, but it is commonly accepted that a replacement rate of roughly 70% is adequate for retirement income from all sources. So how do you make up that 30%?
Warning
If you take Social Security retirement benefits early and are still working, your benefit amount may be reduced if your earnings exceed a certain amount. For 2024, the earnings limit is $22,320.
Stick to a Budget
Making a retirement budget is essential if you have little to no money saved. Having a budget can help you track where your money is going and avoid overspending.
When making a budget for retirement, it’s good to consider where you can slash spending if you anticipate having limited income. You can start with the largest expenses first, which are usually housing and healthcare, then work your way down the list to look for areas where you may be able to cut back.
For instance, if housing costs take up a sizable part of your income, you might be able to reduce those expenses by:
- Downsizing to a smaller home or moving to an area with a lower cost of living
- Renting out part of your home, either on a temporary or permanent basis
- Selling your home and moving in with one of your children, a sibling, or another relative
- Moving to an all-inclusive retirement community that bundles utilities, maintenance, and other homeownership costs into the purchase price
The more cuts you can make, the better off you’ll be when retiring with nothing in the bank.
If you own your home outright and meet other requirements, you may be able to get a reverse mortgage to create an additional stream of income in retirement.
Apply for Government Benefits
Government programs can help to offset some of your cost of living in retirement if you have little or no money saved. There are several government programs for which you may be able to qualify if you have limited financial resources, including:
- Supplemental Nutrition Assistance Program (SNAP)
- Medicaid
- Medicare
- Supplemental Security Income (SSI)
Eligibility requirements for each program vary but can be based on age, disability status, income, and assets. For example, SSI is available to individuals who are 65, blind, or disabled and have limited income and financial resources. Medicare eligibility, on the other hand, is based on age; you can apply when you turn 65.
If you’re unsure of the kind of government benefits for which you might qualify, you can contact your local Department of Social Services. Someone there should be able to tell you the programs for which you may be eligible and how to apply.
Important
Eligibility requirements for SNAP and Medicaid can vary based on the state where you live.
Get a Part-Time Job or Side Hustle
If you’re contemplating retirement with no savings, then you may need to find ways to make more money. Getting a part-time job or starting a side hustle are two ways to earn money in your spare time without being locked into a full-time position.
Examples of possible side hustles that you might start in retirement include:
- Walking dogs or pet sitting
- Babysitting
- Cutting grass or doing yardwork
- Selling homemade baked goods
- Getting paid to run errands or do odd jobs for neighbors
Remember that if you’re earning money from side hustles, the Internal Revenue Service (IRS) still expects you to report that income on your taxes. If you have more than $400 in earnings from side hustles or self-employment for the year, you’ll have to report it as taxable income. Failure to report income properly could result in financial penalties and other serious consequences, such as a tax lien, if the IRS believes that you’re attempting to commit tax fraud.
Ways to Avoid Retiring with No Money
If you fear that you will have to retire without any savings but haven’t yet actually gotten there, there are things you can try to prevent that scenario. They may include:
Pay Off Debt
Debt, of course, is the opposite of savings, so the first thing to do is get rid of yours if you want to save for retirement. Retiring with debt, alas, is not uncommon.
According to a Clever Real Estate survey, in 2023, retirees have an average of $19,888 in debt, excluding mortgage debt but including credit cards, medical bills, car payments, and personal loans. According to the Federal Student Aid Portfolio Summary, borrowers age 50 or older accounted for 25.16% of total student loan debt of $1.63 trillion in 2023.
How you go about paying down debt can depend on what you owe and how much money you have to commit to debt repayment. Some of the options include:
- Credit card balance transfers
- Debt consolidation
- Using a home equity loan or a home equity line of credit (HELOC) to pay off debt
- Federal student loan consolidation
- Private student loan refinancing
If you’re having trouble getting a grip on debt, you might want to talk to a certified credit counselor or debt counselor. They can review your budget and debt to offer solutions for dealing with it, which may include enrolling in a debt management plan, negotiating debt to pay less than what’s owed, or, in extreme cases, filing for bankruptcy.
Increase Your Income
If you need more money but feel stuck at your current pay level, there are steps you can take to increase your income. These include:
- Ask for a raise. Be smart and check comparable salaries to yours. If you are on the low end, make sure that your employer knows it.
- Look for a new job. Sometimes there is little room for advancement where you work, while moving to a different employer could open up the corporate ladder.
- Go back to school. If you improve your credentials, you can increase your earning power.
- Get a second job. There are plenty of part-time opportunities out there, from waiting tables to driving a cab or livery vehicle in the evenings and on weekends.
- Turn your expertise into cash. If you have a deep knowledge about a subject people want to learn about, you could use it to teach part-time, blog online, or hit the lecture circuit.
- Turn a hobby into a business. You may have a passion that you can turn into a marketable sideline online or at various selling places, such as the local fair, a farmer’s market, or a consignment booth in an antiques and tchotchkes store.
Utilize Your Workplace Plan
If your employer offers a retirement plan, it’s to your advantage to make the most of it during your working years. Among private industry workers, 69% have access to a retirement plan at work. Those include both defined-contribution plans, such as a 401(k), and defined-benefit plans, such as a pension.
Saving in a 401(k) can help you head into retirement with some money in hand, especially if you’re contributing enough to get the full employer match if one is offered. With pension plans, your benefit amount is typically determined by how many years you worked for your employer and your income in your highest-earning years.
If your employer offers a 401(k) and you’re not yet enrolled, sign up and start making contributions once you have retired any high-interest debt. If your current employer doesn’t offer one, ask if the company would consider changing that. If not, you might want to consider moving to a new company that does, as 401(k) plans are quite common. If your employer doesn’t offer a pension, though, it’s highly unlikely that you can do anything about that or find a new employer that does. Pensions have largely gone the way of the dodo.
Invest Your Money
Once you are able to start saving, think about investing that money instead of just saving it. When you invest money, you’re putting it into the market, where it can earn a higher rate of return than in a savings account. Both saving and investing can allow you to capitalize on the power of compounding interest, though at different rates.
How can you invest money for retirement? Your options include:
- Contributing to a 401(k) at work
- Opening a traditional or Roth individual retirement account (IRA)
- Investing through a taxable brokerage account
- Purchasing real estate as an investment property
- Buying an annuity to get an unchanging regular income stream
The most important thing to remember about investing is that it almost always involves some degree of risk. Certain investments tend to be riskier than others. For example, trading cryptocurrency is generally riskier than investing in municipal bonds, as the latter is backed by the issuing municipality while the former is not.
Considering your personal risk tolerance, goals, and timeline until you plan to retire can help you decide what approach to take when investing. You may also benefit from talking to a financial advisor or an investment advisor if you need more specific guidance on where to invest.
You Can Also Delay Retirement
Whether you feel that you still haven’t saved enough money for a comfortable retirement or have no savings at all, there’s one more thing you can do: wait to retire.
Delaying your retirement date may not be ideal, and for some people, it might not be realistic. For example, if you have a serious health issue that’s making it difficult to keep up with the demands of your job, then an earlier-than-expected retirement could be inevitable.
However, if you’re able to put off retirement, it can give you more time to save and invest. And as mentioned, waiting longer to retire and claim Social Security could result in a larger benefit amount.
What Happens If You Have No Money When You Retire?
If you retire with no money, you’ll have to consider ways to create income to pay your living expenses. That might include applying for Social Security retirement benefits, getting a reverse mortgage if you own a home, or starting a side hustle or part-time job to generate a steady paycheck.
How Do I Retire in Five Years with No Savings?
Retiring in five years with no savings can be challenging and may require you to make some drastic changes to your financial situation. This might include cutting expenses down to the bone, finding ways to increase your income, and investing aggressively to grow your money faster. You could also aim to max out your 401(k) for those five years, in order to accumulate as much in savings as possible before retiring.
How Do Low-Income People Retire?
Low-income people may retire by cutting their expenses, downsizing their homes, taking Social Security benefits early, and/or applying for financial assistance through government benefit programs. Depending on their situation, they may continue working on a part-time basis or start one or more side hustles to generate supplemental income.
The Bottom Line
Retiring with no money may not be an ideal situation, especially if you’re dreaming of a particular type of lifestyle. If you have little to no money saved and your retirement is nearing, it’s important to start planning sooner rather than later.
Finding a financial planner or advisor to work with can make coming up with a realistic plan for retiring with scant savings easier.
