Tight budget & No 401(k)?

Q – My employer doesn’t offer a 401(k), and my budget is very tight; there’s no way I can save for retirement, but at age 40, I’m getting worried that I won’t ever be able to retire. What other options do I have?

A – While your situation is a common one, most importantly, you realize the challenge facing your long-term finances. And, kudos that you realized this at 40 and not 52. I’m sure you’re aware that not having access to 401(k) just means you have to use other individual retirement accounts for your savings. There are really 2 options if your budget is squeezed; (1) you have to find the money in your current expenses, or (2) find another employer to give you more money. One of my habits over the years was to look at my 1-page annual budget line by line and see if any expenses could be trimmed. And you might have to trim a few to find enough for a new goal like retirement savings. Instead of getting an eye exam and new glasses every year, stretch it to every 1½ years. Stop buying the premium pet food and premium coffee. Spend less on gasoline (and maintenance) by combining errands with commuting to lower miles driven. Dependent on how efficient or inefficient your spending is today, you might be able to find a few thousand dollars a year for retirement, which is a big win. It might start with $4,000 at age 41, and can be ramped up to $8,000 by age 50.  

The second option is to find another employer – even at the same pay – as long as they offer a matching contribution on your 401(k). That 1%, 2% or more is not only free money, it’s a repeating investment that can grow your account faster. The last comment I’ll make though, is the most important. Everyone – regardless of age and retirement savings balance – needs to do the work to see where they are and what it will take to get there. The cost of retirement and old age is too great to just say to yourself you’ll deal with it later or ignore it completely.

I'll also say this has to be done automatically. Without a 401(k) means you'll set up a Roth or Traditional IRA account and have automated transfers from checking the day after your paycheck hits the bank. Lastly, with the 1-page budget technique, take a hard look at whether a more radical change could yield significantly more retirement savings. For example, you have 2 cars because generally when both are working, you buy 2 cars. But what if there was an option, commuting, public transit, a bike, Uber, or some combination to allow you to drop down to 1 car? That action might provide more than half your retirement savings monthly. In summary, don't view your expenses as set in stone, as there are always options to improve your financial situation.