How to Invest if You're 50 and Haven't Saved a Dime for Retirement

Once you turn 50, time is no longer much of an ally in your quest to build a retirement nest egg. If you're behind at this point, it's still possible to reach a reasonable savings target, but if you're starting from $0, you'll need to invest consistently and aggressively to ensure that your savings will fund a financially secure retirement.

Fortunately, once you reach 50, you do have at least three tools at your disposal that younger workers don't. Leverage them, and you increase your chances of reaching your goal. Ignore them, and you'll likely wind up among the nearly 60% of Americans who expect to never be able to retire.

Your three key advantages as a 50-year-old

First and foremost, at age 50, you're likely in or near your peak earnings years. That means you're at the age when you're most likely to have a little extra cash to sock away each payday after you cover your costs of living. If you simply haven't freed up enough cash from your budget to invest, then it's time to figure out what you're spending money on that you don't absolutely need in your life. List your discretionary expenses. Ask yourself what you can give up from that list, and redirect that money toward investing for your future.

Second, if you had kids in your 20s, they are likely either financially independent or close to being so. When your offspring are living elsewhere and paying their own way, that dramatically reduces your monthly expenses. But beyond that, it's time to consider a proactive move to downsize your housing costs. Relocating to a smaller house in a less expensive school district can easily free up a significant amount of cash you would otherwise spend on your mortgage, property taxes, and household upkeep expenses -- cash you can sock away in your retirement accounts.

Third, at age 50, you become eligible to make bonus catch-up contributions to tax-advantaged retirement accounts. As of 2017, those aged 50 and older can invest an extra $6,000 a year in their 401(k) or other similar employer-sponsored retirement plan, and $1,000 more in an IRA. Between the two, you could set aside $30,500 in tax-advantaged accounts each year, which would go a long way toward getting you on track for retirement.

How much can you wind up with?

The table below shows you how much you might expect to save up if you can sock away that $30,500 per year (around $2,542 per month). If you're not able to invest that much, the savings amounts scale linearly -- that's a fancy way of saying that if you can save half as much each month, for instance, you'll wind up with around half the nest egg at retirement, all else things being equal.

Aside from the amount you can save every paycheck, the factors that matter most are how long you can continue working and what rate of return you earn along the way. Be sure you're realistic in your assumptions.

For example, though this chart demonstrates that it's possible for you to reach $1 million or more from here, it may be dangerous to assume that you'll be able to keep working until age 70. In addition, while the broad stock market's long-term returns have been near that 10% annualized level, there are no guarantees that it will match those returns in the future or that your portfolio will match the market's performance. Plus, as you get closer to retirement, it generally makes sense to shift some of your holdings from stocks to bonds in order to protect the money you'll need once you retire. In today's low-interest-rate environment, a high bond allocation cuts your potential rate of return, though it also lowers your risk of losses.

Where to invest your money

The most straightforward approach is to start contributing to your 401(k) or similar employer-sponsored retirement plan immediately. As a 50-year-old, you're potentially able to invest up to $24,000 per year in that plan. The money comes straight out of your paycheck pre-tax, and it grows on a tax-deferred basis until you withdraw it in retirement. In addition, your employer may kick in matching contributions, boosting the value of your savings even more.

As noted above, you can also invest up to $6,500 per year in an IRA. An IRA also offers tax-deferred compounding and -- depending on whether you go the Roth or traditional route -- either a tax deduction on your contributions or tax-free withdrawals.

Beyond those tax-advantaged, retirement-specific accounts, you can also invest an unlimited amount of money through a traditional brokerage account. It'd be an incredible feat to go from investing nothing to setting aside more than $30,500 per year, but it would certainly improve your chances of a comfortable retirement.

When choosing where to put that money, with at least a decade or more to go before you retire, you'll still want to buy growth-oriented investments like stock-focused mutual funds or exchange-traded funds. The low-cost SPDR S&P 500 ETF (NYSEMKT: SPY), for example, tracks the S&P 500 -- an index of 500 of the largest publicly traded U.S. companies. Like a number of similar funds, it's a one-stop investment, offering you broad domestic market exposure and diversification in a single investment.

For international exposure, consider adding an investment like the Vanguard FTSE Total World ex-US ETF (NYSEMKT: VEU), which invests only in companies headquartered outside of the United States. International investing offers you exposure to rapidly growing foreign markets, with the opportunity for higher returns. It also sets you up for returns that are less connected to the movements of the U.S. stock market, though that hedge brings with it additional political and currency risks.

Invest from age 50 through retirement

As you get closer to retirement, you'll want to start shifting a portion of your portfolio from stocks to bonds. Remember, however, that your investments need to get you both to and through your retirement. Especially if you're looking forward to a long retirement, you'll want to keep a large percentage of stock-based investments in your portfolio to give you a shot at earning returns robust enough to beat inflation and taxes.

To reach the point where you can rely on your portfolio to take care of you, you need to begin by taking care of it. Get serious about investing now, while you still have a chance to reach your retirement savings goals.

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Chuck Saletta has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.