Over the past week, I have heard essentially the same thing from two different people.

The first person responded to one of my articles about wealth-building, essentially saying that she was approaching retirement and hadn’t managed to save any money. She said this was totally beyond her control (she cited medical issues) and she said she fears for her future.

The other said:

“Confession time. I am almost 49 and have zero retirement savings. No exaggeration. Absolutely nothing. Maybe $900 in my checking account. No idea what I am going to do. And I know I can’t be the only one.”

I will be honest. These are challenging situations. Indeed, there are many people in this boat. There is a reason I stress to people to get started early. If you get an early start, the amount of savings required to reach a million dollars of savings is relatively modest. Wait until you are 49, and it can be a huge challenge.

First, let me address young people. If you are 20 years old, and you want to accumulate $1 million in savings by the time you are 65 years old, you would need to save and invest only $24 a week (assuming the average long-term return of the S&P 500 and tax-free accumulation). Wait until you are 30, though, and you need to save nearly three times as much per week. So, getting an early start is important.

If you wait until you are 49 years old, you are going to have to save $486 a week to reach the $1 million savings mark at 65. That’s going to be out of reach for many. It’s going to be especially challenging if you have not developed good savings habits. But there is hope.

Strategies for Late Starters

The first thing someone in this boat needs to realize is that major changes may be required if you are sincere about accumulating some retirement savings. Not everyone is in the same boat but let me offer some general guidelines that provide at least one or two strategies that everyone can use.

I write this as someone who watched my four grandparents all retire on nothing but Social Security payments. You don’t want that. It’s a tough life. You also shouldn’t expect the government to come to your rescue, because they probably won’t. I won’t say it will be easy, but you have to take matters into your own hands.

I know there are still people who will say they can’t do any of these things. That’s sadly true in some circumstances, but I doubt it’s true for the majority. Dig deep and make the tough choices as soon as you can. If you don’t, the harsh reality is that time is going to impose those choices on you. Take some control of your destiny while you can.

Assess Current Financial Situation

The first thing you have to do is evaluate your current financial situation. I think this is the step where most people fail. Your budget comes down to the money that flows into your accounts and the money that flows out.

If you are unable to save money, then you could have a problem on the income side, the spending side, or both. Therefore, you have to track income and expenses to understand where money is going and identify areas where spending can be reduced.

I recognize that things are expensive. Education, housing, transportation, food — those are expensive items. But if you are in a dire financial situation, you need to do triage. There are certain items in your budget that will be non-negotiable (to an extent). Food, for example, is in that category. However, there can be an awful lot of flexibility in how much you spend on food, while still getting nutritious meals.

You need to take a hard look at your debt. Focus on paying off high-interest debts first, as this can free up money for savings. It’s pointless to start investing money with a long-term hope of earning 10% annually if you have a credit card balance with a 20% interest rate. Make it a priority to pay off any debts with interest rates above 8%.

If you don’t have a good understanding of your financial situation, it may be hard to stick to a long-term savings plan.

Plugging the Gaps

A thorough understanding of your financial situation may rapidly identify areas for quick improvement. If you eat out four times a week, then you can quickly improve the expense side by simply cutting back.

However, if you have assessed your budget and still feel it is tight, you may to have to take more dramatic steps. You may need to consider a more significant lifestyle change by downsizing on two of the most significant expenses in most people’s budgets.

If a mortgage payment is eating up too much of your budget, consider downsizing to a smaller, more affordable home to reduce housing costs and potentially free up equity. If you still have a car payment — but you could get by with less car — opt for a reliable, economical vehicle to reduce transportation expenses.

You should also consider additional income sources. Remember, this is a triage situation. You want to make these sacrifices now, so they aren’t imposed upon you when you reach retirement. The goal here is for you to have choices. You don’t want to be forced into a choice of living in poverty in retirement versus working until the day you die.

So, consider part-time work or a side business to generate additional income that can be funneled into retirement savings. If you have extra space, consider renting it out for additional income. Consider living arrangements where someone else can help you with the burden of housing costs (e.g., getting a roommate).

But assuming you have taken stock of your situation, shored up your cash flow by increasing your income or reducing your expenses, then what’s next? I will address that next week.

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