Over 40 with No Retirement Savings? Take These 6 Steps

When Leslie Tayne turned 40, her retirement savings, like those of many Americans, were nonexistent.

Tayne, founder of New York City-based law firm Tayne Law Group, says that when she was building her business and career throughout her 20s and 30s, she didn't have any extra funds for retirement. She also went through a divorce that set her back financially.

Ideally, it's best to start saving for retirement as early as possible -- and certainly before your 40th birthday. But as Tayne's story proves, there are still ways to turn a late start into a well-funded retirement.

Today, her business is stable. She's earning more money. So she's been able to quickly build her retirement savings.

"Money was not plentiful when I was building my business," Tayne says. "I had student loans until my late 30s because of law school. So don't have a heart attack if you look down and you don't have any retirement savings when you turn 40. I say, look at what you've accomplished, not what you haven't accomplished. You may have done some great things career-wise. Now it's time to shift priorities and work on retirement."

Here are six steps for getting back on track if you're 40 or older with little or no retirement savings.

1. Crunch the numbers

Laurie Samay, a financial planner and associate at Palisades Hudson Financial Group in Scarsdale, New York, says that 40-year-olds need to first determine how much they need to save to cover all of their expenses for their retirement years.

This means first determining your guaranteed income during your retirement years. This is the amount of money you'll receive each year from Social Security, retirement accounts, pensions, annuities and other sources. You'll then need to estimate your retirement expenses, focusing on big-ticket bills like food, housing, utilities, transportation and health care.

The difference between your guaranteed retirement income and your projected retirement expenses is your savings gap.

"This is the amount that you'll need to save using a combination of tax-deferred retirement plans and taxable accounts," Samay says.

Once you determine how much you need to live on, you can start making adjustments. Samay says that cutting the amount of money that you plan to spend on cable, dining out, entertainment and clothes shopping can make a big difference in freeing up funds for saving.

2. Get aggressive

Bob Stammers, director of investor education at the CFA Institute, says that those who wait until their 40s to start saving need to be aggressive. This means putting aside as much as you possibly can from every paycheck to make up ground. This is easiest if you have a 401(k) plan at work. Stammers says that you need to max out your annual 401(k) contribution to $18,000 a year, the government-set limit for 2015.

"If you're behind in the savings race, you have a lot of ground to make up," Stammers said.

And if you max out your tax-advantaged savings options, such as 401(k)s and IRAs, there's no reason you can't stash more in other savings accounts. The key is to make sure you're saving at a rate that will eventually cover the savings gap mentioned above.

3. Play the catch-up game

The IRS wants you to start saving more too, particularly if you're nearing retirement age. That's why the agency allows people who are 50 or older to make what it calls annual catch-up contributions -- extra contributions to retirement savings accounts that can help people boost their savings. While this might not help people when they are only 40, Stammers recommends that those who are behind in their savings in their 50s take advantage of this.

According to the IRS, if you are 50 or older, you can deposit an extra $6,000 every year in retirement savings in a 401(k), 403(b), SARSEP or governmental 457(b) plan.

You can only make an annual contribution to an IRA of $5,500. But if you are 50 or older, the IRS allows you to make an additional $1,000 of contributions to these accounts every year.

4. Rethink your retirement plans

Joe Sicchitano, head of wealth planning for SunTrust Private Wealth Management, says that rethinking retirement might make a difference. You might retire from your current full-time job. But this doesn't mean that you have to stop earning an income.

Instead, you might decide to work part-time in a field that you've always wanted to explore. This might mean teaching on a part-time basis, offering consulting services for small-business owners or even taking a part-time job at your local grocery store.

The money you earn can help cover for any shortfalls in your retirement savings, Sicchitano says.

"Maybe retirement doesn't mean stopping (work) altogether," Sicchitano says. "We can think of retirement as starting on a new season."

Make time your friend: Two key factors for ensuring a well-funded retirement are time and savings. If you've skimped on the savings, you can always add to the time part of the equation. Working for one, two or more years after you originally planned to retire can add a significant amount of money to your pool of retirement savings, Sicchitano says.

5. Scale back as necessary

Kendrick Wakeman, founder and chief executive officer of FinMason in Boston, says that too many people have no concrete plans for their retirement years. When asked what they want to do after leaving the working world, they might say they want to travel. But is that realistic? You can't travel every day, and travel is expensive.

Wakeman says that writing a detailed plan for how you will spend your time after retirement can help you determine just how far behind you really are in your savings. If you plan to spend time volunteering, visiting with your grandkids and learning a new language or skill, you might not need to save as much money. But if you want a lavish retirement with cruises and international flights, then you better be ready to save much more of your income until then.

The best time to start saving is always now

Regardless of your goals, it's key to not let a late start discourage you from beginning to save -- no matter what your age.

"There is hope," says Wakeman."There is a retirement plan for everybody. If you are just starting to save at age 40, you'll probably have to save with more gusto than someone who started earlier. You have to be more serious about putting aside money. But you can develop a plan to make your retirement work."

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